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Why Berkshire Hathaway Saw a Subdued 2Q17

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Part 5
Why Berkshire Hathaway Saw a Subdued 2Q17 PART 5 OF 9

How Berkshire’s Manufacturing Division Fared

Manufacturing strengthens

Berkshire Hathaway’s (BRK.B) manufacturing division has seen continued deployment from Buffett in recent years. The division managed 4.4% top-line growth to $12.7 billion in 2Q17, mainly driven by growth in industrial, building, and consumer products. It posted pre-tax earnings of $1.9 billion in 2Q17 compared to $1.7 billion in 2Q16, reflecting strength across the three divisions.

How Berkshire&#8217;s Manufacturing Division Fared

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Berkshire has a presence across the industrials (VIS), building products, and consumer products segments. Some of Berkshire’s major subsidiaries include the following:

  • Lubrizol, a specialty chemical company
  • International Metalworking Companies (or IMC), a metal-cutting tools business
  • Precision Castparts Corp (or PCC), a manufacturer of metal products for power, aerospace, and general industrial markets
  • CTB, a manufacturer of equipment for the agriculture sector

Industrials and building

Berkshire’s industrial subdivision contributes slightly above 50% of manufacturing’s total revenues. The growth in 2Q17 was helped by a 9% rise in IMC revenues, a 2% rise in PCC and Marmon subsidiaries, partially offset by a 2% decline in Lubrizol. Building products revenues expanded mainly due to the acquisitions of Shaw and MiTek and sales volume increases, partially offset by lower sales prices and changes in product mix. In contrast, consumer products revenues expanded mainly due to a 12% increase at Forest River and higher sales of Duracell.

McLane

Berkshire’s retail business, McLane, managed revenues of $12.58 billion and pre-tax earnings of $69 million, reflecting thin margins in 2Q17 as compared to $12.05 billion and $129 million, respectively, in the prior-year period.

McLane’s major offerings include grocery to wholesale distribution, convenience stores, retailers, and restaurants. Berkshire faces competition from traditional asset managers such as BlackRock (BLK), JPMorgan (JPM), and State Street (STT), as well as private-equity firms such as Blackstone (BX), which invest and operate in the manufacturing sector.

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