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What to Expect of Berkshire Hathaway’s Energy Performance in 3Q16

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Diversified portfolio

Berkshire Hathaway (BRK-B) runs its Energy businesses through Berkshire Hathaway Energy (or BHE), in which the company has an 89.9% stake. BHE’s major subsidiaries in the United States currently consist of MidAmerican Energy, PacifiCorp, and NV Energy. Berkshire Hathaway acquired NV Energy in December 2013.

Oil prices (USO) have seen weakening trends and have hovered around $40–$50 per barrel, mainly due to the failure of OPEC to achieve an oil output freeze. The long-term outlook remains bearish for the commodity. Berkshire Hathaway (BRK-B) has less exposure in upstream companies and relies more on utilities, transmission, and pipeline businesses. The diversified business has helped the company to sustain its performance amid high volatility.

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Berkshire Hathaway’s Energy segment posted revenues of $4.3 billion in 2Q16 compared to $4.5 billion in 2Q15. The decline was mainly due to subdued revenues from Northern Powergrid and NV Energy. The company also purchased a $396 million stake in Kinder Morgan (KMI), which is trading at a higher value. The stock has risen 12% over the past six months.

Utilities

Berkshire Hathaway mainly operates a portfolio of independent power projects in the US. The company also operates two interstate natural gas pipeline companies. Outside the US, BHE operates two electricity distribution businesses in the UK.

BHE’s earnings before taxes increased to $666 million in 2Q16 compared to $649 million in 2Q15. Earnings for PacifiCorp also increased due to lower energy prices and natural gas costs.

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

Next, let’s study Berkshire Hathaway’s Manufacturing business.

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