Berkshire Hathaway Rings in a strong third quarter
Bershire Hathaway, ticker BRKA for class A shares and BRKB for class B shares reported the third quarter earnings for FY05 yesterday yesterday, 11/04/2005. Berkshire quarterly report is different compared to many other companies - especially the high tech companies. There is no guidance for the next quarter, no proforma earnings, no smoothing of earnings and no one time charge that recurs every quarter. Things are laid out as they are.
Let us take a quick look at the financial results from this quarter.
In the insurance category, revenues went up by 6.2% compared to the year ago quarter. Finance products revenue increased by 7.1%. The cost and expenses went up 2.4 billion ( 14.6% increase ) compared to last year thus reducing the earnings per share compared to the prior year's quarter by about 48%. The main reason for this is the Hurricanes Katrina and Rita.
Cash flow from operating activities increases 12.35% for the first nine months of this year compared to the same period last year. Cash flow from investing activities showed a decline and this is a good sign - it shows more money is being put to work. Cash flow from financing activities went up for the first nine months of this year. Cash and equivalents increased by about 7% year over year - this would have been higher but for the additional six billion ploughed into investment activities.
Overall, the underlying businesses are performing very strongly for Berkshire. The investment of cash continues to be handled very well by Warren Buffett and Charlie Munger. All in all, a very solid quarter for Berkshire.
Motley fool published an article saying why Berkshire is a bargain. The link to that article is attached below. http://www.fool.com/news/commentary/2005/commentary05110206.htm?source=eptyholnk303100&logvisit=y&npu=y. This article is well written except for the future returns part. I think the range of future returns will vary somewhere in 6 - 9% range as opposed to the assumed annual compound rate of 13.8%. Even if you consider the mean of this range at 7.5% - it will end up with a healthy 181K in ten years which isnt bad for a class A share. A similar article is also carried out in Barrons that describes how book value evaluation at Berkshire is conservative. http://www.smartmoney.com/barrons/index.cfm?story=20050404
Morningstar http://news.morningstar.com/doc/article/0,,144207,00.html also did a good analysis of Berkshires equity position vs. the different businesses it owns. The break down of different assets by Q2 2005 looks as follows. 30.4% in cash, 16% in bonds, 29% public equities and 24% outright ownership of businesses. Per morningstar - the weight of publicly owned equities has declined from 51.3% to 29%.
Berkshire is also a good hedge against dollar going down given its investment in government bonds and the foreign currency bet. It is also fairly risk free compared to the other high fliers today such as Google, Microsoft or even WalMart. The management philosophy of this company is very well laid out and no other company can match the record of retaining top notch CEOs. In the era of slash and burn execs that get out with golden parachutes , this company is an anamoly.
Things are also looking up for Berkshire from the investment returns point of view. The short term yield for U.S treasuries has been inching up and is likely to hit 4.5% next year. This will boost the investment income. The negative headline risk quoted by one analyst is also abating. The insurance/re-insurance rates in hurricane affected areas is also expected to go up and recouped within the next year. The hurricane related losses can be looked as a one time charge. The business fundamentals are very strong and things are looking up for this stock in the next couple of quarters.
Bershire Hathaway, ticker BRKA for class A shares and BRKB for class B shares reported the third quarter earnings for FY05 yesterday yesterday, 11/04/2005. Berkshire quarterly report is different compared to many other companies - especially the high tech companies. There is no guidance for the next quarter, no proforma earnings, no smoothing of earnings and no one time charge that recurs every quarter. Things are laid out as they are.
Let us take a quick look at the financial results from this quarter.
In the insurance category, revenues went up by 6.2% compared to the year ago quarter. Finance products revenue increased by 7.1%. The cost and expenses went up 2.4 billion ( 14.6% increase ) compared to last year thus reducing the earnings per share compared to the prior year's quarter by about 48%. The main reason for this is the Hurricanes Katrina and Rita.
Cash flow from operating activities increases 12.35% for the first nine months of this year compared to the same period last year. Cash flow from investing activities showed a decline and this is a good sign - it shows more money is being put to work. Cash flow from financing activities went up for the first nine months of this year. Cash and equivalents increased by about 7% year over year - this would have been higher but for the additional six billion ploughed into investment activities.
Overall, the underlying businesses are performing very strongly for Berkshire. The investment of cash continues to be handled very well by Warren Buffett and Charlie Munger. All in all, a very solid quarter for Berkshire.
Motley fool published an article saying why Berkshire is a bargain. The link to that article is attached below. http://www.fool.com/news/commentary/2005/commentary05110206.htm?source=eptyholnk303100&logvisit=y&npu=y. This article is well written except for the future returns part. I think the range of future returns will vary somewhere in 6 - 9% range as opposed to the assumed annual compound rate of 13.8%. Even if you consider the mean of this range at 7.5% - it will end up with a healthy 181K in ten years which isnt bad for a class A share. A similar article is also carried out in Barrons that describes how book value evaluation at Berkshire is conservative. http://www.smartmoney.com/barrons/index.cfm?story=20050404
Morningstar http://news.morningstar.com/doc/article/0,,144207,00.html also did a good analysis of Berkshires equity position vs. the different businesses it owns. The break down of different assets by Q2 2005 looks as follows. 30.4% in cash, 16% in bonds, 29% public equities and 24% outright ownership of businesses. Per morningstar - the weight of publicly owned equities has declined from 51.3% to 29%.
Berkshire is also a good hedge against dollar going down given its investment in government bonds and the foreign currency bet. It is also fairly risk free compared to the other high fliers today such as Google, Microsoft or even WalMart. The management philosophy of this company is very well laid out and no other company can match the record of retaining top notch CEOs. In the era of slash and burn execs that get out with golden parachutes , this company is an anamoly.
Things are also looking up for Berkshire from the investment returns point of view. The short term yield for U.S treasuries has been inching up and is likely to hit 4.5% next year. This will boost the investment income. The negative headline risk quoted by one analyst is also abating. The insurance/re-insurance rates in hurricane affected areas is also expected to go up and recouped within the next year. The hurricane related losses can be looked as a one time charge. The business fundamentals are very strong and things are looking up for this stock in the next couple of quarters.
posted by stocktrader07 at 7:34 AM
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