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Berkshire’s 1st Quarter May 10, 2010

Posted by shaferfinancial in Finance, Uncategorized.
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Berkshire Hathaway reported it’s 1st quarter results on Friday.  Here is my analysis of the direction of the company.

1. Book Value increased 5.8% to $89,374 per “A” share for the quarter.

2. Operating earnings rose to $1,390 per share a 26.4 % increase over 1st quarter 2009.

3.  Total net earning were $2,272 per share compared to a loss of $990 share the year before.

Insurance operations:

This quarter the insurance operations produced underwriting profits giving the company a negative float cost.  GEICO grew 5.1% in policies in force and had underwriting profits of $299M.  It’s combined ratio was 91.3.  General RE had a underwriting loss of $39M with payouts of $278M for the Chilean earthquakes.  Berkshire Reinsurance group had an underwriting profit of $52M.  So far this year the insurance pricing remains “soft” and Berkshire is lowering the amount of insurance written because of this to maintain underwriting discipline.  Expect this to continue throughout the year.

Manufacturing, Service and Retail:

Income rose to $477M in this sector an increase of 85% over a year ago.  Especially strong results were obtained by Marmon, Iscar and Forest River compared to a year before.  Net Jets returned to profitability after losses for the entire previous year.

Railroads, Utilities and Energy

This section is hard to analyze because of the addition of Burlington-Northern Railroad.  We note that revenue rose 13% at BNI year over year.  And Mid-American Energy saw its earning before income tax rise to $395M from $303M the year before.

Investment and Derivatives:

Berkshire saw investment and derivatives gains of $1.411B this quarter compared to a loss of $3.29B one year ago.  This category is very volatile due to the extreme up and down movements we see in the equity markets.

Notable investment changes include continue selling of Moody’s and Proctor and Gamble [the selling of P&G is most likely to fund the purchase of BNI and BRK still owns $4.7B of this stock].

BRK still has over $25B in cash available.

Here is some long term comparisons for you to chew on:

Revenues in 2009 were $112.5B compared to $25B in 1999;

In 1999 insurance premiums were $14.3B, more than half its yearly revenue. This last quarter insurance revenue fell to $7.43B or 23% of revenue.

It wasn’t that long ago [and some analyst still refer to it as] that Berkshire was considered an insurance company.  But as the above numbers suggest, Buffett has been able to change the company as the environment changed. He has been remarkable in his ability to maneuver through the choppy waters of the 2000s.

If anything, this company remains undervalued and those considering purchasing or adding on your existing ownership [after doing your own due-diligence of course] should.  The future remains very bright IMHO.  BRKb went from $65.22 to $81.27 for the quarter an improvement of 25%.  Since it pays no dividends my return for the quarter was 25%.

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