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What's Driving Berkshire Hathaway?

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Part 6
What's Driving Berkshire Hathaway? PART 6 OF 12

How Berkshire’s Services and Retail Segment Performed

Services and retail

Berkshire Hathaway’s (BRK.B) services and retail division’s performance has been largely flat to positive in recent quarters due to improved revenues from jet services, electronics, media, partially offset by slower housing finance. The company continues to invest more in financial services owing to expectations of the relaxation of laws like the Dodd-Frank Act, which was enacted after the 2007 financial crisis. Berkshire is expanding its existing businesses in services through operating cash flows and fresh investments.

How Berkshire&#8217;s Services and Retail Segment Performed

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Recent performance

In 3Q17, Berkshire’s services and retail combined managed growth of 3.0% in revenues to $6.5 billion compared to nearly $6.3 billion in the prior year. Out of the total, services posted revenues of $2.8 billion, an increase of 6% from the prior year. Retail managed revenues of $3.7 billion.
The growth in services came mainly due to revenue growth for TTI, NetJets, and FlightSafety. The combined posted earnings for services and retail before tax was $491.0 million compared to $449.0 million in the prior year, an increase of 9%.
Berkshire’s retail grew by 1.1% in 3Q17 helped by higher service, finance, and insurance revenues, partially offset by weaker Berkshire Hathaway Automotive (or BHA) revenues. Alternative managers (IYF) like KKR (KKR), Carlyle (CG), and Blackstone (BX) have high exposure in services including financial technology and financial services among other managers.

Missed opportunity?

Berkshire has maintained or increased its stake in traditional businesses like Walmart (WMT) compared to online and fast-growing businesses like Amazon (AMZN). However, new managers are looking at opportunities for generating wealth for shareholders after considering changing business dynamics.

In 2018, Berkshire’s furnishing and kitchen tool businesses could continue to grow at a faster rate, and its auto dealership might see some rebound. Overall, profitability might remain subdued for the retail business as compared to services.

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