What Drove Berkshire’s Services and Retailing Business?

In 3Q16, Berkshire’s (BRK-B) revenues from its Services and Retailing division fell to $6.3 billion in 3Q16 as compared to $6.1 billion in 3Q15. The division’s profits rose to $449 million from $378 million during the same quarter of 2015. On a sequential basis, Berkshire’s revenues and profit before taxes fell marginally.

Berkshire reported an operating margin of 14.4%. In comparison, the company’s competitors reported the following operating margins:

• Allstate (ALL): 11.9%
• MetLife (MET): 13.7%
• American International Group (AIG): 15.5%

Together, these companies make up 6.8% of the Financial Select Sector SPDR ETF (XLF).

Berkshire’s services revenues rose to $2.6 billion compared to $2.5 billion mainly due to NetJets, which increased by 3.9%. NetJets saw higher revenues on higher aircraft dispositions. The company’s pre-tax earnings expanded 6.3% to $305 million in 3Q16 compared to $287 million in 3Q15. Excluding NetJets, Berkshire saw a decline in business across other businesses in Services. The company also saw a weak performance in finance holdings during the quarter mainly due to Wells Fargo’s (WFC) performance.

Berkshire’s retailing business grew to $3.71 billion in 3Q16 compared to $3.68 billion in 3Q15. Earnings before taxes expanded to $144 million compared to $91 million in the prior-year quarter. The company’s revenues expanded due to the impact of Berkshire Hathaway Automotive, home furnishings businesses, and the Louis acquisition.

Berkshire’s retailing businesses include four home furnishing businesses that sell furniture, appliances, flooring, and electronics. It also includes Berkshire Hathaway Automotive (or BHA), which includes 83 auto dealerships. BHA offers new and pre-owned automobiles, and it also offers repair and related services.

In the final part of the series, we’ll study Berkshire’s recent stock movement and valuation.