Berkshire Hathaway Q2 report

[Valuebo]

http://www.sec.gov/Archives/edgar/data/1067983/000115752311004793/a6813983.htm#earn

 

;)

[shalab]

Very solid in all fronts. The BNSF acquisition is looking good with every passing quarter - 17% increase in revenue and profits. In another five years, this would be looked at as the genius move for BRK shareholders.

 

At June 30, 2011, our book value had increased by 3.4% to $98,716 per Class A equivalent share. Insurance float (the net liabilities we assume under insurance contracts) at June 30, 2011 was $71 billion, an increase of $5 billion since the end of 2010

 

 

[beerbaron]

I'm glad to have about 15% in BRK, the old guy does a better job at making me rich then I could myself.

 

BeerBaron

[Valuebo]

Very solid in all fronts. The BNSF acquisition is looking good with every passing quarter - 17% increase in revenue and profits. In another five years, this would be looked at as the genius move for BRK shareholders.

 

At June 30, 2011, our book value had increased by 3.4% to $98,716 per Class A equivalent share. Insurance float (the net liabilities we assume under insurance contracts) at June 30, 2011 was $71 billion, an increase of $5 billion since the end of 2010

 

 

 

Yup. A continuing drop in the markets would also be welcome to deploy some more of that pile of cash.

Float is growing fast too, I like it. Beautiful things will happen in a hardening market. :)

[Guest longinvestor]

Very solid in all fronts. The BNSF acquisition is looking good with every passing quarter - 17% increase in revenue and profits. In another five years, this would be looked at as the genius move for BRK shareholders.

At June 30, 2011, our book value had increased by 3.4% to $98,716 per Class A equivalent share. Insurance float (the net liabilities we assume under insurance contracts) at June 30, 2011 was $71 billion, an increase of $5 billion since the end of 2010

 

At $105,000 per share, it is selling at ~1x BV. Isnt the BV conservatively stated and we are asked by WEB to treat the operating companies separately from the insurance where much of the BV comes from? The operating companies are worth how much, then?

 

 

[Charlie]

Great analysis form another board.  :)

 

Berkshire Hathaway reported the company's net worth during the first half of 2011 increased 3.4% with book value equal to $98,716 per A share as of 6/30/11. The $5.7 billion increase in shareholders' equity was due primarily to $4.9 billion in net earnings and the impact of favorable currency translation.

 

During the second quarter, Berkshire's operating revenues rose 11% to $37.1 billion which included $1.68 billion from a reinsurance contract with a unit of AIG. Under the contract, Berkshire agreed to reinsure the bulk of AIG's U.S. asbestos liabilities with a maximum limit of indemnification of $3.5 billion. With the exception of the Finance and Financial Products group, all of Berkshire's other business units reported revenue gains during the second quarter, including double-digit gains at Burlington Northern Santa Fe, Marmon and the other businesses. Burlington's 17% revenue increase during the second quarter to $4.8 billion reflected 13% higher average revenues per car/unit as well as an increase in cars/units handled and higher fuel surcharges driven by higher fuel costs. In 2011, most of Berkshire's manufacturing businesses experienced increased levels of business and improved operating results, although the rates of improvement were uneven. Of all the manufacturing businesses, IMC Metalworking, an industry leader in the metal cutting tools business with operations worldwide, delivered the largest increase in revenues for the second quarter and first six months of 2011 reflecting greater than expected customer demand, especially in the automotive markets.

 

While most of Berkshire's businesses point to a continued economic recovery, the building product group continues to be negatively impacted by slow construction activity, especially in the single-family housing markets. In addition, revenues from Berkshire's manufactured housing and finance business (Clayton Homes) declined 19% in the second quarter as revenues from home sales were hammered 30% lower. Unit sales in 2011 declined about 22% with the average price per home sold also dropping. Clayton Home's operating results continue to be negatively affected by the ongoing soft housing markets and the surplus of traditional single family homes for sale. Nevertheless, Clayton Homes remains the largest manufacturing housing business in the U.S. and expects to continue to operate profitably even under the current depressed conditions.

 

Berkshire's operating earnings declined 12% during the second quarter to $2.7 billion while net earnings were up 74% to $3.4 billion, primarily due to a swing to a $713 million gain on investment and derivatives compared to a $1.1 billion loss in the prior year period. The investment gain in the 2011 second quarter included a pre-tax gain of $1.25 billion, or $806 million after-tax, from the redemption of Goldman Sachs 10% Preferred Stock.

 

A 12% gain in second quarter operating earnings of the non-insurance businesses was more than offset by a decline in insurance investment income and underwriting losses from estimated catastrophe losses primarily from the earthquakes in Japan and New Zealand.

 

Leading the way for the non-insurance businesses was the manufacturing, service and retailing group, which increased net earnings 18% in the second quarter to $789 million. Berkshire's small retailing group had a gem of a quarter with second quarter pre-tax earnings rising a shiny 64% to $46 million reflecting improved operating results from the jewelry and home furnishing retailers as well as higher earnings of See's Candies, primarily attributable to the timing of the later Easter holiday in 2011. Marmon's second quarter pre-tax earnings rose 25% to $273 million with nine of the eleven business sectors producing similar or increased earnings. Other manufacturing pre-tax earnings increased 18% to $643 million, which reflected higher earnings of IMC, CTB and Johns Manville, partially offset by lower earnings at Shaw, Acme and certain of the apparel businesses.

 

Given the magnitude of the first quarter catastrophe losses, as well as the potential for additional losses from the upcoming hurricane season, it appears that for the first time in nine years, Berkshire will have an underwriting loss in 2011. This doesn't change Warren Buffett's expectation that over time the insurance operations will break even, and Berkshire will get the benefit of the free use of float. However, the cost of float for the first six months of 2011, as represented by the ratio of the underwriting loss to average float, was about 2%. Float approximated $71 billion as of 6/30/11, an approximate 8% increase since year end. Insurance investment income declined 9% to $995 million in the second quarter since the 12% Swiss Re investment and 10% Goldman Sachs preferred stock were called with the funds now invested at the lower rates available today. Investment income is expected to decline further when the 10% General Electric preferred stock is called later this year.

 

Berkshire's railroad, utility and energy businesses are capital intensive with $2.6 billion spent on capital expenditures during the first half of 2011. Capital expenditures for the remainder of 2011 are estimated at $4.7 billion for MidAmerican and Burlington to be funded from cash flow from operations and debt proceeds. Aggregate borrowings of the railroad, utilities and energy businesses were about $32.3 billion as of 6/30/11.

 

Berkshire's balance sheet continues to reflect significant liquidity and a strong capital base of $163 billion. Excluding utility and finance investments, Berkshire ended the first quarter with $157.5 billion in investments ($95,391 per share) allocated approximately 42.1% to equities ($66.4 billion), 22.1% to fixed-income investments ($34.8 billion), 8.3% to other investments ($13.1 billion-including preferred stocks), and 27.5% in cash ($43.2 billion).

 

Free cash flow increased 58% during the first half to $6.5 billion, primarily due to an increase in insurance float. During the first half, Berkshire was a net seller of approximately $646 billion in fixed-income investments and a net purchaser of $4.2 billion in equities. Berkshire's financial strength allows Buffett to make significant investments which should provide substantial future returns.

 

Buffett is seeking acquisitions in the $5-$20 billion range. In March, Berkshire announced it was acquiring Lubrizol, an innovative specialty chemical company, for approximately $9 billion in cash with the deal expected to close in the next one to three months. Lubrizol reported 2010 sales and earnings of $5.4 billion and $732 million, respectively. In June 2011, Berkshire acquired the non-controlling interests in Wesco Financial for $543 million consisting of cash of approximately $298 million and 3.25 million shares of Berkshire Class B common stock.

 

Berkshire Hathaway appears undervalued currently trading at $107,300 per A share and $71.25 per B share. Based on current business fundamentals, I expect Berkshire's A shares to trade between $112,000-$163,000 per share and the B shares to trade between $75-$109 per share.