Friday, November 03, 2006

Berkshire Hathaway (BRK.A/BRK.B) Q3 Report

In this segment, we will look at Berkshire Hathaway quarterly earnings and see the various segments to see how the different businesses are doing.

First, BRK did extremely well this quarter. The book value increased by 5% from the second quarter. The increase in book value was partially helped by the increase in the equity portfolio.

Let us first analyze the different segments by revenue. The insurance premiums increased by 10% year over year for the third quarter. The primary reason for the big surge in insurance income was the reduced adjustment for insurance losses and loss adjustment accounts compared to the same quarter last year.

The increase in revenues year over year (Q3 of 05 vs Q3 of 06 ) in the various segments is as follows:

Geico - 9.35%
GenRe - -0.05%
Berkshire ReInsurance - 31%
Berkshire Primary Group - 8%
Investment Income - 22%
Total Insurance Group - increased by 11.69%.

The apparel group revenues increased by 44.7%.
The building products group increased by 4.9%
Finance products increased by 6.4%
Flight Services increased by 31%
McLane company increased by 4.4%
Retail increased by 10.4%
Shaw Industries was constant
Utilities increased by 2.85 billion this year compared to the prior year.
Other businesses increased by 87%. This includes the Iscar acquisition.

The revenues in operating businesses increased by 26% year over year.

The one segment that performed a bit below last years level is investment/derivative gains. This caused the EPS to come in below 2K level for this quarter.

The net differential in income from the insurance businesses was 3.427 billion. The income from operating businesses sky rocketed by 52% year over year to 1771 million dollars from 1032 million dollars. The new acquisitions definitely contributed to this phenomenal rise. Almost all the analysts have overlooked this part.

The cash flows from operating activities increased by 39% year over year. Cash and equivalents were at 39 billion dollars. About 7 billion out of this amount is spoken for in the equitas deal in the form of additional reserves to be kept aside. Subtracting the ten billion needed for catastrophic events, there is 22 billion available for general investments.

The quarter was very strong. The net earning came in at 4301 million before income taxes. Both the revenues and net earnings from insurance and other operating businesses have beaten the whisper numbers. The earnings per share beat the wallstreet consensus estimates by a wide margin.

The intrinsic value of BRKA is some where in the 125-131K range from a very conservative view point. If the shares dont go up further this year, investors can expect 10%+ growth in stock price in 2007 and 2008. BRKA is still a cheap stock and a bargain compared to the more popular stocks of the type of Google, Apple variety.

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