Berkshire Operating Profits Soar 67% in Second Quarter

(BRK.A), (BRK.B)

Berkshire’s operating results for the second quarter and first six months of 2018 and 2017 are summarized in the following paragraphs. However, we urge investors and reporters to read our 10-Q, which has been posted at www.berkshirehathaway.com.The limited information that follows in this press release is not adequate for making an informed investment judgment.

Earnings of Berkshire Hathaway Inc. and its consolidated subsidiaries for the second quarter and first six months of 2018 and 2017 are summarized below. Earnings are stated on an after-tax basis. (Dollar amounts are in millions, except for per share amounts).

Second Quarter

First Six Months

2018

2017

2018

2017

Net earnings attributable to Berkshire shareholders $12,011 $4,262 $10,873 $8,322
Net earnings includes:
Investment and derivative gains/losses –
Investments 4,824 185 (1,439 ) 390
Derivatives 294 (42 ) 131 257
5,118 143 (1,308 ) 647
Operating earnings 6,893 4,119 12,181 7,675
Net earnings attributable to Berkshire shareholders $12,011 $4,262 $10,873 $8,322
Net earnings per Class A equivalent share attributable to Berkshire shareholders

$7,301

$2,592

$6,610

$5,060

Average Class A equivalent shares outstanding 1,645,057 1,644,580 1,645,008 1,644,503

Note: Per share amounts for the Class B shares are 1/1,500th of those shown for the Class A.

In 2018, due to a change in Generally Accepted Accounting Principles (“GAAP”), we are now required to include the changes in unrealized gains/losses of our equity security investments as a component of investment gains/losses in our earnings statements. In the table above, investment gains/losses in 2018 include a gain of approximately $4.5 billion in the second quarter and a loss of approximately $1.7 billion in the first six months of 2018 due to changes during the second quarter of 2018 and changes during the first six months of 2018 in the unrealized gains/losses of equity security investments held at June 30, 2018. In 2017 and in prior years, while changes in unrealized gains/losses were reflected in our shareholders’ equity, they were not included in our earnings statements. Accordingly, the following statement which has been included in each of Berkshire’s earnings releases for many years along with some additional comments (additional comments underlined) is even more important when analyzing Berkshire’s periodic results. The amount of investment gains/losses in any given quarter is usually meaningless and delivers figures for net earnings per share that can be misleading to investors who have little or no knowledge of accounting rules.

An analysis of Berkshire’s operating earnings follows (dollar amounts are in millions).

Second Quarter

First Six Months

2018

2017

2018

2017

Insurance-underwriting $943 $(22 ) $1,350 $(289 )
Insurance-investment income 1,142 965 2,154 1,873
Railroad, utilities and energy 1,890 1,467 3,620 2,785
Other businesses 2,570 1,985 4,766 3,593
Other 348 (276 ) 291 (287 )
Operating earnings $6,893 $4,119 $12,181 $7,675

At June 30, 2018, our book value per Class A equivalent share was $217,677. Insurance float (the net liabilities we assume under insurance contracts) was approximately $116 billion at June 30, 2018, an increase of $2 billion since yearend 2017.

Use of Non-GAAP Financial Measures

This press release includes certain non-GAAP financial measures. The reconciliations of such measures to the most comparable GAAP figures in accordance with Regulation G are included herein.

Berkshire presents its results in the way it believes will be most meaningful and useful, as well as most transparent, to the investing public and others who use Berkshire’s financial information. That presentation includes the use of certain non-GAAP financial measures. In addition to the GAAP presentations of net earnings, Berkshire shows operating earnings defined as net earnings exclusive of investment and derivative gains/losses.

Although the investment of insurance and reinsurance premiums to generate investment income and investment gains or losses is an integral part of Berkshire’s operations, the generation of investment gains or losses is independent of the insurance underwriting process. Moreover, as previously described, under applicable GAAP accounting requirements, we are now required to include the changes in unrealized gains/losses of our equity security investments as a component of investment gains/losses in our periodic earnings statements. In sum, investment gains/losses for any particular period are not indicative of quarterly business performance.

© 2018 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

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