Berkshire hathaway’s operating earnings soar in the first quarter — the motley fool wikipedia electricity consumption


Berkshire Hathaway ( NYSE:BRK-A) ( NYSE:BRK-B) reported that operating earnings increased 49% year over year to $5.3 billion in the first quarter of 2018. The Omaha-based holding company reported that its insurers, railroad, and manufacturing subsidiaries all earned higher profits, though losses in its investment portfolio weighed on its net income.

Berkshire’s manufacturing, service, and retailing businesses include everything from Precision Castparts to Dairy Queen and See’s Candies. These mostly American-based businesses that Berkshire has acquired over the years are now its single-largest profit driver.

The industrial businesses remain the key earnings driver in this segment. Revenue at Precision Castparts, one of its biggest industrial manufacturing businesses, increased by 6% compared to the year-ago period, due to increased demand for its aerospace products. The company said that pre-tax profit declined, however, due to costs and lost earnings related to an unexpected plant shut down.

Berkshire said that Lubrizol’s pre-tax earnings increased by 19% in the first quarter, adjusted for a loss it incurred in the first quarter of 2017 related to a goodwill writedown. It wrote in its quarterly report that IMC’s "pre-tax earnings increased significantly" due to increased sales, manufacturing efficiencies, and business acquisitions.

This collection of businesses includes everything from Clayton Homes to equipment financing businesses including UTLX and XTRA. Profits from these businesses grew 23% compared to the prior-year period, helped by a declining tax rate and a modest 10% increase in pre-tax profit.

Clayton Homes is benefiting from tailwinds in housing construction. Revenue from manufactured housing and financing increased 16% year over year, and pre-tax earnings increased about 11% compared to the year-ago period. Buffett explained in his letter to shareholders this year that Clayton Homes is getting involved in other types of housing construction, including site-built homes. Investment losses of $6.4 billion erased all operating earnings

An accounting change now requires Berkshire to record mark-to-market swings in its investment portfolio in its quarterly results. This quarter, the company recorded $6.4 billion of losses due to its investments and derivatives. Virtually all of that loss was due to a decline in the value of publicly traded stocks it owns.

Of course, neither Buffett nor long-term Berkshire shareholders put much weight on the ups and downs in the investment portfolio over short periods of time. Given that Berkshire’s stock portfolio was worth nearly $173 billion at the end of the quarter, a single-digit percentage change in the value of its public stock portfolio can have a massive impact on reported earnings from quarter to quarter.

It’s safe to say that going forward, Berkshire will likely report large losses when stocks drop, and large profits when stocks rise, but what really matters are the returns over the long haul. And as far as long-term returns go, there are very few investors that have a long-term record even half as good as Berkshire Hathaway’s.