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Why Berkshire Hathaway Saw a Subdued 2Q17

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Why Berkshire Hathaway Saw a Subdued 2Q17 PART 1 OF 9

What Drove Berkshire’s 2Q17 Performance?

Berkshire’s 2Q17 performance

Berkshire Hathaway (BRK.B) posted earnings per share (or EPS) of $2,592 in 2Q17, lower than the analyst estimates of $2,800 and prior-year EPS of $3,042. The lower-than-estimated profits were mainly due to underwriting losses, lower investment gains, partially offset by improved BNSF and manufacturing performance. The investment giant’s investment gains declined to $290 million compared to $643 million in the prior year period, reflecting subdued growth of the broad market (SPY) (SPX-INDEX).

What Drove Berkshire&#8217;s 2Q17 Performance?

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Berkshire’s revenues grew to $57.5 billion from $54.3 billion in the prior-year quarter helped by BNSF revenues and higher insurance revenues, partially offset by a decline in the finance division’s revenues. The company’s operating profit fell 11% to $4.1 billion.

Berkshire stock has risen 4.7% in the past month and 25.0% in the past year. By comparison, the S&P 500 (SPX-INDEX) (SPY) has risen 2.0% in the past month and 13.9% in the past year. The company’s book value per share rose 2.7% to $182,816.

Liquidity

As of June 30, 2017, Berkshire had a record $99.7 billion in liquidity compared to $96.5 billion in the previous quarter. The company has a notional profit of $12.5 billion from warrants of Bank of America (BAC), which are expected to be converted into equity.

With a market capitalization of ~$444.0 billion, Berkshire Hathaway is one of the biggest holding companies and has companies engaged in businesses across all major sectors, including insurance and reinsurance, freight rail transportation, manufacturing, utilities and energy, finance, and service and retail.

Berkshire’s conglomerate business model competes with major players like BlackRock (BLK), American International Group (AIG), and MetLife (MET).

In this series, we’ll study Berkshire’s performance in 2Q17, its balance sheet, acquisition options, and valuations.

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