Utilities help growth
Berkshire (BRK-B) manages its energy business through BHE (Berkshire Hathaway Energy), in which the company has an 89.9% stake. Berkshire’s utility interests in the US consist of MidAmerican Energy, PacifiCorp, and NV Energy, which was acquired in 2013. Berkshire Hathaway’s BHE posted revenues of $5.2 billion in 3Q16 as compared to $5.1 billion during the same quarter last year. The growth was mainly due to higher revenues from MidAmerican and real estate brokerage, partially offset by lower revenues from NV Energy and Northern Powergrid.
Oil prices (USO) have recovered from their lows, resulting in higher valuations for Berkshire’s upstream businesses, which form a small portion of the company’s total investments. Berkshire has invested mainly in Utilities, Pipelines, and Transmission businesses. This has helped the company expand even in times of weak oil prices.
The company recently made an investment in Kinder Morgan (KMI) for $396 million at distressed pricing. The stock has risen by 20% over the past six months.
BHE’s earnings before taxes rose to $1,246 million in 3Q16 as compared to $1,153 million during the same quarter last year. Operating earnings rose for all the sub-divisions except that of Northern Powergrid. Earnings for MidAmerican rose mainly due to higher retail and wholesale electric revenues, a higher customer load, and electric rates partially offset by lower natural gas revenues.
Berkshire also operates the second-largest residential real estate brokerage company in the US. Outside of the US, BHE operates two regulated electricity distribution businesses in the UK. Berkshire faces competition from utility operators and asset managers such as KKR (KKR), Blackstone Group (BX), and other managers that form part of the Utilities Select Sector SPDR ETF (XLU).
Next, we’ll study Berkshire’s manufacturing business performance in 3Q.