Berkshire Hathaway or the S&P 500 over the Next Decade?

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Part 5
Berkshire Hathaway or the S&P 500 over the Next Decade? PART 5 OF 11

Why Berkshire’s Manufacturing Could Turn Be a Major Success

Manufacturing: a major driver

China is slowly moving toward becoming a consumption-and services-based economy in an effort to counter slowing growth. Meanwhile, the Trump administration is pushing domestic manufacturing in an effort to achieve a similar target. What we’re witnessing is a major shift in global trade—and in globalization on the whole.

Berkshire’s (BRK.B) continued interest in manufacturing has placed it well among other big players to take advantage of this shift, driven by the policies of the current US administration. The company also has a huge cash pile to add more names to its portfolio and augment growth.

Why Berkshire&#8217;s Manufacturing Could Turn Be a Major Success

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Berkshire’s major holdings in industrials (VIS) include building products and consumer products. Some of Berkshire’s main subsidiaries include:

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

Top-line growth

Berkshire’s manufacturing division managed 4.4% top-line growth, reaching $12.7 billion in 2Q17, helped by growth in building, industrial, and consumer products. The division posted pre-tax earnings of $1.9 billion, compared with $1.7 billion in the prior year, reflecting strength across its three divisions.

Berkshire’s industrial subdivision contributes more than half of manufacturing’s total revenues. In 2Q17, its growth was helped by a 9% rise in IMC revenues. Building products’ revenues increased mainly due to the additions of Shaw and MiTek and sales volume increases. Consumer products’ revenues increased due to a 12% rise at Forest River and higher sales of Duracell. Berkshire’s retail business, McLane, managed revenues of nearly $12.6 billion in 2Q17.

In the area of acquiring manufacturing businesses, Berkshire faces competition from traditional asset managers (XLF) such as JPMorgan Chase (JPM), BlackRock (BLK), and State Street (STT).


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