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Berkshire Hathaway Reports 2011 February 26, 2012

Posted by shaferfinancial in Finance.
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Warren Buffett released the full year results for 2011 and his annual letter to stockholders yesterday. The results were full of unexpected news. First, for many the importance of who succeeds Mr. Buffett has taken on unusual proportions, so he announced the board has identified the person who will take over when Warren steps down. I doubt this will satisfy many, but it speaks to the fact that the board has settled that issue to their satisfaction.

Second surprise for me was that for the 9th consecutive year the insurance operations had an underwriting profit. With the various natural disasters around the world, I thought for sure there would be an underwriting loss for the year. For those folks who don’t know, making an underwriting profit is an unusual occurrence for insurance companies so the fact it has been accomplished for nearly a decade is a testament to the abilities of the managers at Berkshire. The insurance float is now up to $70.5B from $65.8B.

Bottom line results demonstrated Book Value went up 4.6% to $98,366. Operating earnings from non-insurance companies and investments increased to $6,990 or 18% over 2010. The two large regulated businesses both increased their profitability with Mid-American increasing to $1.204B from $1.131B and BNSF increasing to $2.972 from $2.459. The manufacturing, service and retailing businesses increased their profits from $2.462B to $3.039B. Investments in equities had a market value of $76.9B at the end of the year. The big addition here was IBM with Berkshire owning $11.7B worth at the end of 2011.

They bought Lubrizol early in the year and it looks like a winner. In fact the five largest businesses owned [Lubrizol, Mid-American, BNSF, Iscar and Marmon] made over $9B pre-tax last year. Warren expects that to rise to over $10B in 2012.

Finally some mention of the $5B investment in Bank of American preferred with warrants to purchase 700M shares at $7.14 [currently in the money at $7.88] must be made.

Berkshire did buy back a small amount of its stock before it went up past the 110% of book value it had set as its limit.

The derivatives again made a negative bookkeeping mark on the companies financials. Most of these are pretend losses as they won’t be settled for a decade or more. Total for the year showed a $830M investment loss due to this issue compared to a $2.3B profit in 2010. I back out these profits or losses when I do my year to year analysis.

Bottom line, Berkshire showed an increase in intrinsic value, operating earnings increasing, cash flow increasing and made several large investments. It still has over $37B in cash on hand. I consider the market has seriously undervalued this stock [as does Buffett by instituting buy backs]. When it will move up to a more rational value is anyone’s guess.

I still hold a majority of my investment portfolio in Berkshire and will continue to do so.



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