Berkshire Energy Is Expected to Post Subdued Earnings in 3Q16



Diversified energy portfolio

Berkshire Hathaway (BRK-B) manages its energy businesses through BHE (Berkshire Hathaway Energy), in which it has an 89.9% stake. BHE’s utility interests in the United States currently consist of PacifiCorp, MidAmerican Energy, and NV Energy. NV Energy was acquired in December 2013.

Oil prices (USO) have been hovering around $45 per barrel as OPEC (Organization of the Petroleum Exporting Countries) and Russia discuss an output freeze. However, the long-term outlook remains weak for the commodity. Berkshire has a diversified portfolio in the form of utilities, pipelines, and transmission businesses rather than just being in the upstream oil business. This has helped the company expand even in times of weak oil prices.

Berkshire Hathaway’s energy division posted revenues of $4.3 billion in 2Q16 for its BHE subsidiary. This compares to $4.5 billion during the same quarter last year. The fall was mainly due to lower revenues from NV Energy, Northern Powergrid, and its other energy businesses.

Berkshire recently made an investment of $396 million in Kinder Morgan (KMI) at distressed pricing. The stock has risen 23% over the past three months.

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Natural gas and utilities

Berkshire also operates a diversified portfolio of independent power projects and the second-largest residential real estate brokerage company and franchise network in the United States. It also owns two domestic regulated interstate natural gas pipeline companies. Outside the United States, BHE operates two regulated electricity distribution businesses in the United Kingdom.

BHE’s EBT (earnings before taxes) rose to $666 million in the June quarter compared to $649 million during the same quarter last year. Earnings for PacifiCorp rose due to lower energy and natural gas costs.

Berkshire competes with utility operators and asset managers such as KKR (KKR), Blackstone Group (BX), and other major players that make up part of the Utilities Select Sector SPDR ETF (XLU).

Now let’s take a closer look at Berkshire’s manufacturing business.


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