Berkshire Hathaway 2008 Q2 Results

– Profit at Berkshire Hathaway (BRK.A / BRK.B) decreased 8%, due to weaker results from insurance underwriting.
– Insurance underwriting profit decreased 43% to $360M. Earned premiums increased 5% to $6.23B.
– Net income decreased to $2.88B, or $1,859 per class A share, from $3.12B, or $2,018, a year earlier.
– Operating profit declined 10% to $2.27B, or $1,465 per share, from $2.51B, or $1,625, a year earlier.
– Investment income increased 3% to $884M. Profit from non-insurance businesses increased 4% to $1.09B.
– Revenue increased 10% to $30.09B.

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As Warren Buffet likes to reminds us from time to time, we should not be overly critical of quarterly results for many businesses. We should really focus on year end results. The reason is that timing of many business operations result in non-uniform results across quarters, especially in the insurance industry. However, in some industries & businesses we do need to look at specific and meaningful numbers such as sales figures, inventory levels, etc during each quarter. Examples are in industries such as retail, manufacturing, etc. The Berkshire quarterly report explains in a bit more detail, as to why quarterly results are not that meaningful for insurance companies in particular:

“For a number of reasons, Berkshire’s results for interim periods are not normally indicative of results to be expected for the year. The timing and magnitude of catastrophe losses incurred by insurance subsidiaries and the estimation error inherent to the process of determining liabilities for unpaid losses of insurance subsidiaries can be relatively more significant to results of interim periods than to results for a full year. Variations in the amounts and timing of investment gains/losses can cause significant variations in periodic net earnings. Investment gains/losses are recorded when investments are sold, other-than-temporarily impaired or in instances as required under GAAP, when investments are marked-to-market. In addition, changes in the fair value of derivative assets/liabilities associated with derivative contracts that do not qualify for hedge accounting treatment can cause significant variations in periodic net earnings.”

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For any business, we want to look at significant things they have been doing in the last few months. Not too much has been captured in the quarterly report since the last one (annual) in May 2008. The most significant is the recording of 60% acquisition of Marmon Holdings Inc. Marmon is a diverse holdings company that consists of manufacturing and service business that operate in the Wire & Cable, Transportation Services & Engineered Products, Highway Technologies, Distribution Services, Flow Products, Industrial Product, Construction Services, Retail Services. They operate in North America, Europe, and China.

Berkshire’s consolidated cash and invested assets, excluding assets of finance and financial products businesses, was approximately $131.1 billion at June 30, 2008. Although this is a consolidated number and a good portion is held by the insurance subsidiaries, it is an exceptional capital position which can be used to take advantage of any opportunity Buffet may see.

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There is little doubt that Buffet has again purchased more of his favorite stocks. Which ones and how many shares will be released later by the SEC. We’ve seen many of his favorite banks hit significant lows during the last couple of months. In particular Wells Fargo (WFC) has hit a low of $20.46. Others banks as US Bancorp (USB) has also dipped by a large number as well. In other industries we have seen the number 3 vaccine maker Sanofi-Aventis (SNY) hit a low of $32.11. Buffet has been busy on all fronts from acquistions, stock purchases, Berkshire Hathaway Finance, to financing deals. When the economy and markets are hit hard, an the herd panics, that is when the investors (not speculators) make moves that will make them large profits in the years to come. You should be busy too!

The Berkshire Hathaway 2nd quarter report can be found at the following link:
http://www.berkshirehathaway.com/qtrly/2ndqtr08.pdf

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Thanks & Happy Investing,
The Investment Blogger

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2 thoughts on “Berkshire Hathaway 2008 Q2 Results

  1. Yes, and had to take a $1Billion hit for unrealized losses in derivatives. Losses that when realized will most likely be profits! I was very pleased with the report overall and it came out much better than the “analyst” predicted.

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