Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK.A, NYSE:BRK.B) got off to a solid start in 2015 and looks poised for another good year — especially if the market continues to lumber along at its current pace
After all, Berkshire Hathaway stock is designed in such a way that it tends to perform better in flat to down markets. When the market is soaring 30% in a year — as it did in 2013 — that’s when BRK.B is at risk of falling behind.
With the market up less than 3% so far this year, Berkshire Hathaway stock can be expected to overtake it eventually. Indeed, first-quarter earnings appear to have set BRK.B on that course now.
BRK.B shot up more than 3% over the last three sessions in anticipation of Berkshire Hathaway’s quarterly results and annual meeting, which took place Saturday. True, Berkshire Hathaway stock is still lagging the broader market by about 4 percentage points for the year-to-date, but after Q1 earnings, that gap should not exist much longer.
Probably the two biggest weights on BRK.B this year have been sluggishness in Berkshire Hathaway’s insurance business and a poor showing at its railroad operations. Good news for anyone holding Berkshire Hathaway stock — a bounce back at both of divisions drove a healthy increase in quarterly earnings.
BRK.B Rises on Rebounds
Berkshire Hathaway’s insurance businesses, which provides a large source of cash for other activities, mostly snapped back in Q1. Although results among BRK.B’s various insurance companies was mixed, operating earnings from underwriting grew to $480 million from $461 million year over year. Investment income from the insurance division increased to $875 million from $720 million a year ago.
The railroad business repaired any problems to boost revenue and earnings. In the prior quarter, Warren Buffett described the performance of the BNSF Railway Company as “substandard.” Harsh winter weather was partly to blame but only partly. In the latest quarter, lower fuel costs and investments to upgrade its system and expand lines drove BNSF to revenue and profit gains.
Dividends from Berkshire Hathaway’s investment in the merger of Burger King Worldwide Inc (NYSE:BKW) and Tim Hortons Inc. (USA) (NYSE:THI) to form Restaurant Brands International Inc (NYSE:QSR) and a gain on derivatives also fueled results.
Berkshire Hathaway’s profit rose 9.8% to $5.16 billion, or … if we’re having fun with this, $3,143 per Class A share, from $4.71 billion, or $2,862 per share, a year earlier. Operating income, which is what Wall Street analysts track, for BRK.A came to $2,583 per share to beat the estimate of $2,373 estimate, according to a survey by Bloomberg.
Meanwhile, book value — Warren Buffett’s favorite measure of performance — rose to $146,963 per Class A share from $146,186 in the prior quarter.
As a conglomerate, BRK.B has wide exposure to the economy. So, it’s reassuring that Berkshire Hathaway did as well as it did during a quarter in which gross domestic product grew just 0.2%.
BRK.B did much to reassure the market with its first-quarter performance. Barring a big setback in the current quarter, BRK.B’s trend should be firmly to the upside.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
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