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Berkshire Makes Strategic Investments for Services and Retailing

Could Berkshire Hathaway's Buys Stabilize Its 4Q15 Earnings?

(Continued from Prior Part)

Services and retailing

In 2016, Berkshire (BRK-B) sold some of its shares in AT&T (T) and deployed funds in Wells Fargo (WFC). The company’s service and retailing revenues increased to $6.2 billion in 3Q15, compared with $3.5 billion in the prior year’s corresponding quarter. The division’s profits rose to $378 million from $355 million during the same quarter of last year. Berkshire’s services and retailing division is one of the most profitable and is expected to report strong numbers in the fourth quarter due to consumer spending.

Revenues in this division climbed mainly due to the addition of new companies. Together, these companies added $2.5 billion in revenues. Excluding these acquisitions, revenues expanded for home furnishings retailers, driven by Nebraska Furniture Mart.

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Berkshire Hathaway reported an operating margin of 14.4%. By comparison, its competitors reported the following margins:

  • American International Group (AIG) reported 15.5%

  • MetLife (MET) reported 13.7%

  • Allstate (ALL) reported 11.9%

Together, these companies form 6.5% of the Financial Select Sector SPDR ETF (XLF).

Finance and financial products

In 2016, Berkshire bought 9.4 million shares of Wells Fargo, the company’s largest holding, bringing total investments above $26 billion. In 3Q15, the company’s finance division reported a rise in revenues from 8% to $1.7 billion, mainly due to higher home unit sales. The division’s pretax earnings rose to $486 million from $453 million in the prior year’s quarter.

Berkshire Hathaway’s major subsidiaries in the segment include manufactured housing builder and financier Clayton Homes, transportation equipment manufacturing and leasing businesses UTLX and XTRA Lease, as well as other leasing and financing businesses. XTRA owns and leases over-the-road trailers. UTLX manufactures, owns, and leases railcars, intermodal tank cars, and cranes.

Diversified operations

Berkshire Hathaway operates many subsidiaries in the service and retail industry. Its major businesses include NetJets, a provider of fractional ownership programs for general aviation aircraft, and FlightSafety International, a provider of high-technology training for aircraft operators. The following are some of its other businesses:

  • TTI, an electronic components distributor

  • Business Wire, a distributor of corporate news, multimedia, and regulatory filings

  • Dairy Queen, which licenses and services a system of over 6,500 stores that offer prepared dairy treats and food

  • The Buffalo News and the BH Media Group, which includes the Omaha World-Herald, as well as 28 other daily newspapers and numerous other publications

  • WPLG, which operates a television station in Miami, Florida

Continue to the next and final part for an analysis of Berkshire Hathaway’s valuations.

Continue to Next Part

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