Berkshire Hathaway's Headline Looks Great But Operating Earnings Down

| About: Berkshire Hathaway (BRK.B)
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Legendary investor Warren Buffett's insurance and investment giant Berkshire Hathaway (NYSE:BRK.B) reported a strong headline number Friday afternoon. Revenue jumped 22% year-over-year to $41 billion, greater than the consensus estimate. Reported earnings surged 72% year-over-year to $3.9 billion, which also exceeded consensus estimates. Buffett's favorite metric, book value, is up 11.9% year-to-date to $111,718 per Class A share.

Operating earnings weren't quite as strong, dragged down 9% year-over-year to $5.5 billion when excluding non-cash items. Insurance underwriting gains significantly swayed profitability, as Berkshire Reinsurance swung to a $100 million loss from a $1.375 billion profit during the same quarter last year. Geico's underwriting income nearly tripled, but its $435 million profit was not nearly enough to overcome the weakness from Berkshire Re. Non-insurance operations were all stronger than the previous year, led by Burlington Northern Santa Fe, where pre-tax profit jumped 22% year-over-year to $1.5 billion.

Berkshire continues to generate gobs of cash, with operating cash flow up 1% year-to-date to $16 billion. Cash and cash equivalents sit at nearly $175 billion, with $42 billion sitting in Buffett's "elephant gun." Though Berkshire purchased toy and trinket company Oriental Trading for approximately $500 million on Friday, Buffett has indicated he's looking to make a large meaningful acquisition-likely larger than Lubrizol, in our view. We aren't sure what he intends to purchase next, but we suspect, in typical Buffett fashion, that it will be a solid, predictable company with strong cash flows.

Warren Buffett remains a competent manager, in our view, and the quintessential Valuentum investor. We're fans of Berkshire stock whenever it trades below book value, although Buffett himself has admitted that the company may not be able to achieve its exceptional track record going forward.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.