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Berkshire Hathaway’s Services Segment Garners Steady Growth in 4Q17

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Services growth

Berkshire Hathaway’s (BRK.B) Services segment posted revenues of $7.1 billion in 4Q17, for 4.0% growth year-over-year, helped by media, NetJets, and electronics holdings. The segment posted earnings before taxes of $644.0 million, up by 9.0% due to the price increase and expense management across major subsidiaries.

Consumer confidence, lower unemployment rate, and wealth generation have been major drivers of services growth in recent quarters. Higher interest rates are impacting Berkshire Hathaway’s housing finance, financial services, and related businesses.

TTI and NetJets are the top performers among Berkshire Hathaway’s major services businesses. Berkshire Hathaway’s FlightSafety, media, and logistics units see subdued business growth amid high competition in their respective sectors.

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Retailing lags

For fiscal 2017, Berkshire Hathaway’s Services revenues totaled $11.2 billion and its Retailing segment generated total revenues of $15.1 billion. Traditional retailing hasn’t been able to provide major growth in 2017 due to competition from e-commerce companies. Berkshire Hathaway is expected to look at companies adopting multi-prong marketing strategies or seek inorganic growth in order to generate continued growth.

Among Berkshire Hathaway’s peers in the asset management (XLF) industry, Blackstone (BX), Apollo Global Management (APO), and KKR (KKR) are looking to add companies that are more aggressive on the risk-reward front.

e-Commerce giant Amazon (AMZN) has garnered a stellar growth rate compared to Walmart (WMT). Berkshire Hathaway could alter its investment strategy to add high-growth assets subject to reasonable valuations. Berkshire Hathaway can also provide acquisition finance to its wholly owned retailer subsidiaries in a bid to add e-commerce companies.

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