Berkshire Hathaway Inc. (BRK.A) (BRK.B) reported its second quarter 2011 operating earnings of $1.80 per share, which marks a 12% year-over-year drop. The deterioration was caused by a decline in operating earnings from its insurance businesses that suffered due to high catastrophe claims.
However, net income, which includes investment and derivatives, came in at $2.3 per share, up 77% year over year. The surge in net income was attributable to a gain of $713 million in investment and derivatives during the reported quarter, as against a loss of 1.1 billion in the year-ago quarter.
Total revenue climbed 20.8% year over year to $38.3 billion, primarily due to an increase in revenue derived from its Railroad, Utilities and Energy segment and higher investment gains.
Segment Results
Insurance group reported revenue of $10.4 billion, up 24% year over year. While net premium earned upped 30% year over year to $8.9 billion, net investment income dropped 8.6% year over year. The segment recorded net insurance underwriting loss of $7 billion in stark contrast to net underwriting gain of $462 million in the prior-year quarter. This was led primarily by losses of $354 million from Berkshire Hathaway Reinsurance Group on account of several significant natural calamities during the quarter under review.
Railroad, Utilities and Energy segment’s total revenue increased 10.3% year over year to $7.5 billion. 64% of the revenue came from Burlington Northern Santa Fe, the railroad company, which was acquired in February 2010. Rail demand is bouncing back with an increase in industrial and agricultural activity as well as reviving consumer demand, a trend that is expected to continue. However, revenue from MidAmerican, which operates an international energy business, inched down 0.22% year over year to $2.7 billion.
Total revenue of the Manufacturing, Service and Retailing segment climbed 7.1% year over year to $18.2 billion, led by an increase in all the sub-businesses. Marmon’s revenue improved 14%, Mc Lane’s revenue increased 2%, and other manufacturing which includes a wide array of businesses saw an increase of 12% in revenues. Revenue from the segment’s other manufacturing activities for the quarter stood at $5,201 million, a 12% year-over-year increase. The growth in revenues reflected higher sales of apparel products, building products and recreation vehicles, metal-cutting tools, and systems for grain, poultry, egg and hog production.
Finance & Financial Products segment’s total revenue declined 13.8% year over year to $991 million, led by a 19% drop in revenue from the manufactured housing business, Clayton Homes, which continues to be adversely affected by the soft housing market and the surplus of traditional single-family homes for sale. However, the drop was partly mitigated by a 12.4% increase in revenues from furniture/transportation equipment leasing segment.
Omaha-based Berkshire continues to grow its balance sheet. Consolidated shareholders’ equity or net worth, as of June 30, 2011, was $163.0 billion, up 1.8% sequentially and up 3.6% year over year.
During the quarter, Berkshire acquired the non-controlling interests in Wesco Financial Corporation for an aggregate consideration of $543 million including cash of approximately $298 million and 3.25 million shares of Berkshire Class B common stock. Wesco is now an indirect wholly-owned subsidiary of Berkshire.
Overall, the results reflect that all the segments at Berkshire are performing well. However, given the high catastrophe loss incidence during the first half of the year and the potential for additional losses during the hurricane season in the other half of the year, it is quite likely that Berkshire’s insurance might post underwriting loss, suppressing overall earnings.
