Berkshire Hathway: Second Quarter Financial Results

[valueinvesting101]

https://www.sec.gov/Archives/edgar/data/1067983/000119312516673492/0001193125-16-673492-index.htm

 

The cash pile climbed to $72.7 billion as of June 30 from $58.3 billion three months earlier. That is above December level before acquisition of PCP. It is only going to swell going forward.

 

Any guesses about next acquisition?

[ourkid8]

I would love to see Berkshire truly bag an elephant, KO!

[Ballinvarosig Investors]

Buffett has a habit of going with companies that he has past history with. Naturally, he's looking to buy at a fair price. This is controversial, but what company ticks that box? Goldman Sachs  ;D I am jesting, but for the reputation risk, I think it really would be his kind of company, especially at today's price.

[valueinvesting101]

Could it be Phillip 66? Berkshire has been buyer around current price. They already own 15% of the company. So remaining 85% should cost around $37-40 billion similar to PCP deal size.

 

I think refining might not be the optimal business for Berkshire to get into but they do seem to like the stock. I am wondering why there hasn't been any fresh buying after 6/13 even though price went dipped around 74 few times in July.

[John Hjorth]

I would love to see Berkshire truly bag an elephant, KO!

 

With a market cap north of USD 200 B right now, ex. acquisition premium, that would require quite some leverage.

[Guest longinvestor]

YOY Quarterly net earnings up by a Billion. That's north of 15% growth, run rate.

[Jurgis]

Buffett has a habit of going with companies that he has past history with. Naturally, he's looking to buy at a fair price. This is controversial, but what company ticks that box? Goldman Sachs  ;D I am jesting, but for the reputation risk, I think it really would be his kind of company, especially at today's price.

 

Isn't GS a bank now? Isn't there some rules or issues with BRK owning a bank? Isn't that's the reason they got rid of banks in the past and never fully owned a bank or increased AXP position since?

 

Although rules have changed a lot in last couple decades, so I don't know what's the last on this.

[JBird]

YOY Quarterly net earnings up by a Billion. That's north of 15% growth, run rate.

 

Earlier in this letter, I pointed out some numbers that Charlie and I find useful in valuing Berkshire and measuring its progress.

 

Let’s focus here on a number we omitted, but which many in the media feature above all others: net income. Important though that number may be at most companies, it is almost always meaningless at Berkshire. Regardless of how our businesses might be doing, Charlie and I could – quite legally – cause net income in any given period to be almost any number we would like.

 

- 2010 Berkshire letter

[Guest longinvestor]

YOY Quarterly net earnings up by a Billion. That's north of 15% growth, run rate.

 

Earlier in this letter, I pointed out some numbers that Charlie and I find useful in valuing Berkshire and measuring its progress.

 

Let’s focus here on a number we omitted, but which many in the media feature above all others: net income. Important though that number may be at most companies, it is almost always meaningless at Berkshire. Regardless of how our businesses might be doing, Charlie and I could – quite legally – cause net income in any given period to be almost any number we would like.

 

- 2010 Berkshire letter

 

2016 Q2 is higher than 2015 Q2 because there are several large permanent sources of income added to the stable that were not there in 2015. PCP, Duracell, Phillips etc. These are not going away, so a new base of earnings has formed so it is non random. I used "run rate" with this in mind. 

 

The above WEB quote is talking about random q-to-q swing. Is there another point you are trying to make? Or is it simple denial now that earnings growth is far higher than you projected?

[thepupil]

YOY Quarterly net earnings up by a Billion. That's north of 15% growth, run rate.

 

2Q 2014: $6.3B Net Income

2Q 2016: $5.0B Net Income

 

Berkshire's earnings declined by 18% a year over 2 years! What's the run rate decline?

 

 

[thepupil]

 

2016 Q2 is higher than 2015 Q2 because there are several large permanent sources of income added to the stable that were not there in 2015. PCP, Duracell, Phillips etc. These are not going away, so a new base of earnings has formed so it is non random. I used "run rate" with this in mind. 

 

Actually pre-tax operating earnings from non-insurance were flat YoY. Manufacturing increased nicely but this was offset by the declines at BNSF. The YoY growth was from insurance underwriting (investment income decreased), MTM on derivatives, and Kraft. See p. 24/25 of today's Q.

 

Don't mean to nitpick, and I own the stock too, but to say earnings are higher because of PCP, Duracell, and phillips is not factually correct.

 

 

[Guest longinvestor]

YOY Quarterly net earnings up by a Billion. That's north of 15% growth, run rate.

 

2Q 2014: $6.3B Net Income

2Q 2016: $5.0B Net Income

 

Berkshire's earnings declined by 18% a year over 2 years! What's the run rate decline?

 

http://www.wsj.com/articles/car-crashes-are-on-the-rise-and-warren-buffett-blames-texting-1441800119

this perhaps accounts for the lion share of earnings swing between 2014 and 16.Rate increases is wip. Reinsurance is in long term decline as well.

 

 

 

[Guest longinvestor]

 

2016 Q2 is higher than 2015 Q2 because there are several large permanent sources of income added to the stable that were not there in 2015. PCP, Duracell, Phillips etc. These are not going away, so a new base of earnings has formed so it is non random. I used "run rate" with this in mind. 

 

Actually pre-tax operating earnings from non-insurance were flat YoY. Manufacturing increased nicely but this was offset by the declines at BNSF. The YoY growth was from insurance underwriting (investment income decreased), MTM on derivatives, and Kraft. See p. 24/25 of today's Q.

 

Don't mean to nitpick, and I own the stock too, but to say earnings are higher because of PCP, Duracell, and phillips is not factually correct.

 

Fair enough, agreed. MSR is only 200M of the 1B. Big delta is in Insurance and "other".

 

I think waiting for the dust to settle, meaning a couple more years would be prudent.That said, Duracell, PCP, Phillips do increase annual earnings base by a B. 

 

 

[shalab]

Don't forget that KHC is carried at below book - almost $13 B lower than today's market value. In addition, IBM, BAC etc. have recovered. It is still very cheap...

 

 

2016 Q2 is higher than 2015 Q2 because there are several large permanent sources of income added to the stable that were not there in 2015. PCP, Duracell, Phillips etc. These are not going away, so a new base of earnings has formed so it is non random. I used "run rate" with this in mind. 

 

Actually pre-tax operating earnings from non-insurance were flat YoY. Manufacturing increased nicely but this was offset by the declines at BNSF. The YoY growth was from insurance underwriting (investment income decreased), MTM on derivatives, and Kraft. See p. 24/25 of today's Q.

 

Don't mean to nitpick, and I own the stock too, but to say earnings are higher because of PCP, Duracell, and phillips is not factually correct.

 

Fair enough, agreed. MSR is only 200M of the 1B. Big delta is in Insurance and "other".

 

I think waiting for the dust to settle, meaning a couple more years would be prudent.That said, Duracell, PCP, Phillips do increase annual earnings base by a B.

[shalab]

Morning star analysis:

 

http://news.morningstar.com/articlenet/article.aspx?id=763883

 

[Guest longinvestor]

Morning star analysis:

 

http://news.morningstar.com/articlenet/article.aspx?id=763883

 

Greg Warren claims Buffett did confirm to us during the company's last annual meeting that he would aggressively buy back stock if it dipped below 1.2 times book value, even if the firm had not yet reported its end-of-quarter book value per share to shareholders..

 

This is a topic that was discussed on this board earlier. I don't believe WEB said that at all at the meeting. To be honest, I've thought in terms of them doing this sort of thing to make me wealthier. So I listened carefully. This was a question from Greg W and Buffett indicated that the buy back was not intended to wrest away shares from existing shareholders. It was more to fully inform shareholders what they were giving up @ 1.2 BV, should they decide to sell. As a shareholder this was a great lesson for me that they fully abide by the spirit of the Owner's manual.

 

Anyone who listened to this at the AGM, please correct this if incorrect.

 

Besides, it is ludicrous to think that someone is sitting down @ Omaha and monitoring day-by-day book value! At BRK's complexity level, BV is likely an unknown number until the books are fully closed which is likely to happen shortly before it is reported.

 

It appears that Greg W is trying to answer his own question the way he likes!! Also, I'm no big fan of Morningstar; I see them as a dubious messenger engaged in broad scale obfuscation (by looking cleverly elegant in their analysis) to allow mutual funds to steal from the poorly informed populace.

[Guest longinvestor]

https://www.sec.gov/Archives/edgar/data/1067983/000119312516673492/0001193125-16-673492-index.htm

 

The cash pile climbed to $72.7 billion as of June 30 from $58.3 billion three months earlier. That is above December level before acquisition of PCP. It is only going to swell going forward.

 

Any guesses about next acquisition?

 

Looking at the investments, Deere & Davita look possibilities. Davita would let Ted W bring one home.

 

[John Hjorth]

https://www.sec.gov/Archives/edgar/data/1067983/000119312516673492/0001193125-16-673492-index.htm

 

The cash pile climbed to $72.7 billion as of June 30 from $58.3 billion three months earlier. That is above December level before acquisition of PCP. It is only going to swell going forward.

 

Any guesses about next acquisition?

 

Looking at the investments, Deere & Davita look possibilities. Davita would let Ted W bring one home.

 

To me, this sounds like an educated guess. Let's see what the future brings. Personally, I like sitting here with the ears laid back and the arms crossed on the chest, just waiting to get surprised what will be the next move, even making money on this when I'm at sleep - in the long run.

[cubsfan]

Morning star analysis:

 

http://news.morningstar.com/articlenet/article.aspx?id=763883

 

Greg Warren claims Buffett did confirm to us during the company's last annual meeting that he would aggressively buy back stock if it dipped below 1.2 times book value, even if the firm had not yet reported its end-of-quarter book value per share to shareholders..

 

This is a topic that was discussed on this board earlier. I don't believe WEB said that at all at the meeting. To be honest, I've thought in terms of them doing this sort of thing to make me wealthier. So I listened carefully. This was a question from Greg W and Buffett indicated that the buy back was not intended to wrest away shares from existing shareholders. It was more to fully inform shareholders what they were giving up @ 1.2 BV, should they decide to sell. As a shareholder this was a great lesson for me that they fully abide by the spirit of the Owner's manual.

 

Anyone who listened to this at the AGM, please correct this if incorrect.

 

 

 

Longinvestor - you might want to listen to this again. "The odds are extremely high we will buy a lot of stock at 1.2X or less"

He's going to buy back tons of stock if we get there - but he won't "prop the stock" - and he is eager to do so...

 

Relevant section is 4:15:00 minute mark:

 

https://www.youtube.com/watch?v=hrulcIBe3Z0

 

[Jurgis]

At current market valuations, there are few things that are cheap for Buffett to bag. He could buy something like PSX or Deere on assumption that they are cheap here. Or DVA on assumption that its future is better than market expects even at high valuation.

 

In the past usually the buys at high market prices took longer to work out. I guess that's what some people were saying when PCP was bought.

[John Hjorth]

longinvestor,

 

https://www.youtube.com/watch?v=hrulcIBe3Z0 , at about the 04:12:00 mark and then some minutes going forward, about the buyback scheme at place right now.

 

The first part of this

 

Greg Warren claims Buffett did confirm to us during the company's last annual meeting that he would aggressively buy back stock if it dipped below 1.2 times book value, even if the firm had not yet reported its end-of-quarter book value per share to shareholders.

 

is right, including the last part of the sentence in the article is not right [in the meaning "not said"/"misleading"/"lack of precision in written reporting by a journalist"], though Mr. Buffet states that he follows this relationship between market price of the stock and book value closely.

 

There are a lot of shades in the statement from Mr. Buffett made on this question at the AGM that are worth noting.

 

To me the built in qualifications in the statements af the AGM is about that what potential investment opportunities Mr. Buffett has on his desk at that particular moment when the market price is about 1.2 X BV, as an alternative investment opportunity to share buybacks, and that we will never know.

 

Personally, after listening carefully to the above mentioned slip of the video, I - sucjectively - consider the BRK buy back scheme - at least a bit - more "firm" than "soft" without here trying to quantify it in one way or another.

 

And I like that, going forward with this investment.

 

longinvestor, thank you for bringing my personal attention to this BRK issue/topic.

[Kiltacular]

longinvestor,

 

https://www.youtube.com/watch?v=hrulcIBe3Z0 , at about the 04:12:00 mark and then some minutes going forward, about the buyback scheme at place right now.

 

The first part of this

 

Greg Warren claims Buffett did confirm to us during the company's last annual meeting that he would aggressively buy back stock if it dipped below 1.2 times book value, even if the firm had not yet reported its end-of-quarter book value per share to shareholders.

 

is right, including the last part of the sentence in the article is not right [in the meaning "not said"/"misleading"/"lack of precision in written reporting by a journalist"], though Mr. Buffet states that he follows this relationship between market price of the stock and book value closely.

 

There are a lot of shades in the statement from Mr. Buffett made on this question at the AGM that are worth noting.

 

To me the built in qualifications in the statements af the AGM is about that what potential investment opportunities Mr. Buffett has on his desk at that particular moment when the market price is about 1.2 X BV, as an alternative investment opportunity to share buybacks, and that we will never know.

 

Personally, after listening carefully to the above mentioned slip of the video, I - sucjectively - consider the BRK buy back scheme - at least a bit - more "firm" than "soft" without here trying to quantify it in one way or another.

 

And I like that, going forward with this investment.

 

longinvestor, thank you for bringing my personal attention to this BRK issue/topic.

 

My take on the Berkshire buyback scheme:

 

(1)  He doesn't want to buy back any shares  (He will...but he doesn't want to...no matter how cheap he thinks they are).

 

(2)  He implemented the buyback as a way to guarantee meeting his "beating the S&P metric" -- a dollar retained is worth more in "market value" than in book value...at least 1.2x.  Why?  Because, he doesn't want to pay a dividend and he doesn't want to buy back any shares...the threshold works for these purposes.  But, he's committed to doing some combination of those things if Berkshire's market price doesn't keep up with its growth in BVPS.

 

(3)  He doesn't want this obvious set-up to be gamed so he is warning the smart money that, say, in a market crash, your put options might be put to you because he might let the price drop to .9x book (or whatever) for a relatively short period of time, i.e. long enough for most options to expire worthless and/or destroy the people trying to game him.

[Guest longinvestor]

longinvestor,

 

https://www.youtube.com/watch?v=hrulcIBe3Z0 , at about the 04:12:00 mark and then some minutes going forward, about the buyback scheme at place right now.

 

The first part of this

 

Greg Warren claims Buffett did confirm to us during the company's last annual meeting that he would aggressively buy back stock if it dipped below 1.2 times book value, even if the firm had not yet reported its end-of-quarter book value per share to shareholders.

 

is right, including the last part of the sentence in the article is not right [in the meaning "not said"/"misleading"/"lack of precision in written reporting by a journalist"], though Mr. Buffet states that he follows this relationship between market price of the stock and book value closely.

 

There are a lot of shades in the statement from Mr. Buffett made on this question at the AGM that are worth noting.

 

To me the built in qualifications in the statements af the AGM is about that what potential investment opportunities Mr. Buffett has on his desk at that particular moment when the market price is about 1.2 X BV, as an alternative investment opportunity to share buybacks, and that we will never know.

 

Personally, after listening carefully to the above mentioned slip of the video, I - sucjectively - consider the BRK buy back scheme - at least a bit - more "firm" than "soft" without here trying to quantify it in one way or another.

 

And I like that, going forward with this investment.

 

longinvestor, thank you for bringing my personal attention to this BRK issue/topic.

 

My take on the Berkshire buyback scheme:

 

(1)  He doesn't want to buy back any shares  (He will...but he doesn't want to...no matter how cheap he thinks they are).

 

(2)  He implemented the buyback as a way to guarantee meeting his "beating the S&P metric" -- a dollar retained is worth more in "market value" than in book value...at least 1.2x.  Why?  Because, he doesn't want to pay a dividend and he doesn't want to buy back any shares...the threshold works for these purposes.  But, he's committed to doing some combination of those things if Berkshire's market price doesn't keep up with its growth in BVPS.    U

(3)  He doesn't want this obvious set-up to be gamed so he is warning the smart money that, say, in a market crash, your put options might be put to you because he might let the price drop to .9x book (or whatever) for a relatively short period of time, i.e. long enough for most options to expire worthless and/or destroy the people trying to game him.

 

(4) He and the board do not want the next CEO to start with the pressure of having $100+B to deploy. Or face the "full bladder" situation and pee it away. The longer it takes for the transition the easier it should be to pull the buyback trigger. Simply increase the 1.2 to 1.5 or whatever. Cast a wider net in a sense

[JBird]

My take on the Berkshire buyback scheme:

 

(1)  He doesn't want to buy back any shares  (He will...but he doesn't want to...no matter how cheap he thinks they are).

 

(2)  He implemented the buyback as a way to guarantee meeting his "beating the S&P metric" -- a dollar retained is worth more in "market value" than in book value...at least 1.2x.  Why?  Because, he doesn't want to pay a dividend and he doesn't want to buy back any shares...the threshold works for these purposes.  But, he's committed to doing some combination of those things if Berkshire's market price doesn't keep up with its growth in BVPS.

 

(3)  He doesn't want this obvious set-up to be gamed so he is warning the smart money that, say, in a market crash, your put options might be put to you because he might let the price drop to .9x book (or whatever) for a relatively short period of time, i.e. long enough for most options to expire worthless and/or destroy the people trying to game him.

 

What is all this based on?

[shalab]

seeking alpha valuation:

 

Nevertheless, using that as a proxy would mean that Berkshire Hathaway's fair value per A share is $247,000 and per B share is $165. My preferred method of calculating Berkshire's intrinsic value is not as aggressive as the $292,000 from the "two-column" approach, but does suggest that the market is discounting the shares, currently by about 12%. If you prefer to use the market multiple of current year earnings of 19, then each A share would be worth $278,000. That is much closer to the estimate obtained from the "two-column" approach to valuing the company and means the current price is a discount of 22% to intrinsic value.

 

http://seekingalpha.com/article/3996858-reviewing-berkshire-hathaways-2nd-quarter-earnings?auth_param=5kic5:1bqdjkl:a2a483dc7a7571a7d2c0ab5c073573ab&uprof=45