Acquisitions Drive Berkshire Hathaway Inc. Earnings 25% Higher

By Markets Fool.com

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Warren Buffett's masterpiece -- insurance titan and mega-conglomerate Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B) -- saw its second-quarter financial results boosted by its recent blockbuster acquisition deals.

Manufacturing, service, and retailing

Berkshire's manufacturing revenue surged 28% to $12.2 billion, lifted by the company's recent $4.2 billion purchase of battery maker Duracell and its $32.7 billion purchase of aerospace parts company Precision Castparts.

Sales in the company's service and retailing operations, however, fell 1% to $18.4 billion. The decline was mostly attributable to a 14% year-over-year decrease in revenue at NetJets, reflecting both lower aircraft sales and reduced fuel surcharge revenue due to lower fuel prices.

In total, net earnings from Berkshire's manufacturing, service, and retailing segment rose 14% to $1.5 billion.

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Insurance operations

Underwriting profits improved to $337 million, up from a loss of $38 million in the year-ago quarter as customer additions and rate hikes boosted results at GEICO, and Berkshire's reinsurance business benefited from changes in foreign exchange rates.

GEICO wrote 11.4% more in premiums compared with the prior-year period, and the crown jewel of Berkshire's insurance subsidiaries delivered $150 million in pre-tax underwriting gains, a 183% year-over-year improvement.

In addition, Berkshire Hathaway Reinsurance Group generated an underwriting gain of $184 million, compared to a loss of $411 million in Q2 2015. The business benefited from foreign currency gains and lower estimated losses on prior-year policies.

Railroad, utilities, and energy

Business for Berkshire's Burlington Northern Santa Fe railroad continued to be dampened by lower demand for the transport of coal and oil-related products; BNSF's revenue fell 15% to $4.6 billion.

Berkshire Hathaway Energy also saw a decline in revenue, with sales decreasing 5% to $4.3 billion.

All told, pre-tax operating earnings at Berkshire's railroad, utilities, and energy segment fell 14% to $1.3 billion.

Putting it all together

Company-wide, Berkshire's revenue rose 6% to $54.5 billion in the second quarter, while operating earnings jumped 18% to $4.6 billion. And Berkshire's net earnings, which are impacted by the company's volatile investment income, surged 25% to $5 billion.

Berkshire ended the quarter with approximately $90 billion in insurance float -- essentially, the cash the insurer collects up front when premiums are paid, but that it doesn't have to pay out until claims are made. Berkshire gets to invest the float -- and keep the profits.

In that regard, Berkshire's public stock portfolio was valued at $104.2 billion as of June 30, approximately 61% of which was concentrated in four companies:$23.7 billion in shares of Wells Fargo (NYSE: WFC); $18.1 billion in Coca-Cola (NYSE: KO); $12.3 billion in International Business Machines (NYSE: IBM); and $9.2 billion in American Express (NYSE: AXP). Of note is Berkshire's position in IBM, which produced an unrealized loss of about $1.5 billion as of the end of the second quarter. However, Berkshire continues to maintain that it has no plans to sell the stake, and believes it will recover in value over time.

Finally, book value -- Buffett's preferred performance metric, which provides a measure of net worth by subtracting Berkshire's liabilities from its assets -- rose 2.9% since the end of 2015 to $160,009 per Class A equivalent share. That places Berkshire Hathaway's stock at about 1.38 times book value -- not far from the 1.2 times book that Buffett identified as the price at which he himself would repurchase shares.

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Joe Tenebruso has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and Wells Fargo. The Motley Fool recommends American Express and Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.