Berkshire Hathaway (BRK.B), perhaps best known for its charismatic chairman and chief executive, Billionaire Warren Buffett, is a Fortune 500 company. According to their recent third quarter report, the company reported operating earnings of $2,228 per class A shares (BRK.A). Meanwhile, Buffett's shares have risen over 30% this year, easily beating the great performance of the S&P index.
Berkshire Hathaway is an investment conglomerate that has a broad-base, with holdings spanning across diverse industries. Today this conglomerate leases corporate aircrafts, operates power plants and utility companies, owns a railroad, publishes a newspaper, and sells a wide range of consumer products ranging from Geico Insurance policies to Dairy Queen ice cream.
Despite its tremendous size, Berkshire Hathaway continues to expand its holdings. and grow earnings per share. For instance, in June of this year, along with 3G Capital, a private equity firm, it paid $23 billion to purchase some of the famous ketchup company, H.J. Heinz, which has been in business 144 years. Next in the works is a plan to possibly buy Nevada's utility company, NV Energy (NVE), for about $5.59 billion through its MidAmerican Energy Holdings Company, which is a power and gas company.
Insurance is one of the biggest and most profitable industries in the world, and Berkshire Hathaway has built its core around it. The insurance holdings consist of several insurance companies, including such well known names as Geico Corporation, which is the well-known car insurer, and General Reinsurance, which, as the name states, is a reinsurer.
In the non-insurance sector of Berkshire, Burlington Northern Santa Fe is considered to be one of the primary sources for steady earnings.
Steady Revenue and Operating Income Growth
Berkshire Hathaway has been growing steadily for the past 50 years, primarily due to the astute leadership of Warren Buffett, who has earned the moniker, "the Oracle of Omaha."
The company began in the 1960s when Buffett purchased Berkshire Hathaway, a textile business founded in 1889. It then expanded to acquire companies with a solid earning potential in industries as diverse as those involved in building materials, clothing lines, insurance businesses, flight services, media publications, retail establishments, and financial institutions.
Diversity has served Berkshire Hathaway well. In fact, it has put it on the map for the Forbes 2000 list of the most important global enterprises. Currently, the company has an estimated quarter million employees around the world, with cash holdings around $50 billion.
Factors behind Berkshire's Success
While there are many factors responsible for the company's success, two are considered on the top of the list. The first is that Warren Buffet continues to take an intense interest in the business at the age of 83. Additionally, a carefully considered succession plan is in place to continue the company's growth. The second is that the company's diversity has helped balance out income opportunities for investors who can benefit from both short and long-range goals.
Crisis Tested and the Future of Berkshire
How well a company does can often be gauged by how well it performs during a crisis. Berkshire has passed this test admirably, using the financial crisis to grow even further by investing $26 billion in Bank of America (BAC), Dow Chemical (D)W) , Goldman Sachs (GS), General Electric (GE), and Mars Inc. Besides these investments, we expect the company will continue to grow through its established holdings in its insurance and reinsurance companies, freight rail transportation, utility, power generation, retailing and distribution businesses.
Berkshire Hathaway continues to be a solid core holding ("mutual fund") for growth oriented investors.