Energy Units, Insurance, Aid Third Quarter Berkshire Hathaway Earnings

During the third quarter of 2014, Berkshire Hathaway reported operating earnings of $1.91 per share, which is much farther ahead of the Zacks consensus estimate of $1.70 per share. When compared to the same quarter one year ago, earnings are favorable at the prior $1.49 per share.

Growth in earnings was primarily from the insurance business which received major benefits from higher underwriting income due to the absence of any major catastrophic claims. It also grew from the energy business, which benefited quite nicely from the purchase last year of NV Energy in Nevada. Other segments contributing to the earnings growth to a lesser degree: retail, service, manufacturing, financial products and finance.

Total revenue for the quarter is $51.2 billion. This is up year over year by 15.2%. The overall increase was driven by growth on a broad scale across all of the operating segments, with insurance being the largest contributor.

Total expense and cost has also increased by 13.5% year over year at $44.4 billion.

Segmented Results

For the insurance group, we see a year over year increase of 32.1% to $13.7 billion. The primary reason for this increase is due to a twofold rise in premium from the Berkshire Hathaway Reinsurance Group, also followed by bigger contributions from General Re, Berkshire Hathaway Primary Group and Geico. The insurance segment at the company has been the largest generator of float, which Warren Buffett customarily uses to make his investments.

The investments, taking the form of acquisitions and equity, have turned Berkshire Hathaway into a major conglomerate with over 80 small and large subsidiaries. Income from this segment prior to taxes increased by 43.6% year over year to reach $1.9 billion thanks to the absence of major catastrophes during the quarter.

Utilities, energy and railroads increased their operating revenue by 18.7% year over year to reach $10.7 billion. Of the total revenue for the segment, more than 50% of it came from railroad company Burlington Northern Santa Fe, which was acquired by Berkshire Hathaway in February 2010. Income generated by this segment prior to taxes increased by 26.3% year over year to $2.7 billion, and was led by an increase of 79% in operating earnings from Berkshire Hathaway Energy Company.

The manufacturing, service and retailing segment of the company, including Iscar, McLane and Lubrizol, has increased by 7% year over year to reach $25.2 billion. The income generated by this segment, prior to taxes, has increased by 10.2% year over year to $1.8 billion. It was led by higher contributions from manufacturing as well as other businesses.

The finance and financial products segment at Berkshire Hathaway, including manufactured in housing finance company Clayton Homes; furniture rental company CORT Business Services; repair, leasing and equipment manufacturing of railcar and other transportation company Marmon; as well as their over the road trailer leasing company XTRA, has increased to $1.7 billion, which is a 7.5% year over year gain.

Berkshire Hathaway Financial Position

On September 30, 2014, consolidated shareholders’ equity was $237.5 billion, and this reflects an increase of 7% since December 31, 2013. The approximate consolidated cash was $62.4 billion at the end of the quarter, and this is up by 29.5% since the same date of December 31, 2013.

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