Mixed Berkshire Earnings While Book Value Gains (BRK-A, BRK-B)

It was largely expected that Berkshire Hathaway Inc. (NYSE: BRK-A)(NYSE: BRK-B) was going to have positive earnings trends.  After all, Buffett’s stock portfolio has almost certainly surged along with the stock market, his derivatives positions have likely seen write-ups, its NetJets has just made an acquisition, and its game-changing BNSF railroad acquisition was expected to be a solid addition.   The big issue is that year over year comparisons are going to be hard to make because the BNSF acquisition was not completed a year ago, and one quarter ago was the first full quarter to include the BNSF operations as the deal closed on February 12, 2010 (during Q1).  As a result, we currently evaluate Berkshire Hathaway on a sequential change basis because the year over year issues are more drastic due to the state of the economy and due to business changes.

After going through the revenues by group, there was an improvement in revenues sequentially in all three areas.  Its SEC filing showed:

• Insurance and ‘Other’ revenues came in at $28.159 billion versus $25.969 billion in Q2-2010.
• Railroad, Utilities and Energy revenues came in at $7.215 billion versus $6.766 billion in Q2-2010.
• Finance and Financial Products revenues came in at $36.274 billion versus $31.709 billion for Q2-2010.  Those figures include gains and losses from derivatives, so they are often not representative of broad investing activity.

Operating earnings were listed as $2.787 billion and was listed as $2.989 billion net after items after gains and losses in derivatives and after sales of investments.  That compares to the prior sequential quarter’s report of $3.074 billion, and versus $1.968 billion in net earnings attributable to holders after gains and losses in derivatives and after sales of investments.

The operating earnings per share on class A share basis was $1,692 EPS but came to $1,814 EPS after items from derivatives.  That figure was $1,866 EPS in the June 30 quarter, but that figure was $1,195 per share after items from derivatives.

At September 30, 2010, Berkshire Hathaway’s book value rose 7.5% to $90,823 per Class A equivalent share while its A shares had a September 30 price of $124,500.00.  As of June 30, 2010, Berkshire’s book value was up 2.6% to $86,661 per Class A equivalent share while the June 30 share price was $120,000.00.  The company had cash and cash equivalents of close to $30.8 billion as of the end of September, and equity investments were listed as roughly $57.6 billion.

Operating earnings for the third quarter and first nine months of 2010 increased 35.6% and 45.9% from the comparable periods in 2009. BNSF was the major contributor adding $1.59 billion to net earnings since our acquisition on February 12, 2010, including $706 million during the third quarter.

As always, here are the full Berkshire Hathaway public stock holdings.

Berkshire Hathaway’s “A” shares closed up 0.87% at $125,560.00 and the “B” shares closed up 0.9% at $83.72.  Berkshire Hathaway’s B shares are trading down 0.27% at $83.49 right after the report but this is not an active after-hours stock at all.

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JON C. OGG