Hurricanes Drag Down Berkshire's Quarterly Earnings
Bad weather weighed on results at Warren Buffett's Berkshire Hathaway Inc, as losses from insurance claims tied to Hurricanes Harvey, Irma and Maria and an earthquake in Mexico contributed to a 43 percent drop in third-quarter profit.
Berkshire on Friday said net income fell to $4.07 billion, or $2,473 per Class A share, from $7.2 billion, or $4,379 per share, a year earlier.
Operating profit, which excludes investment and derivative gains and losses and which Buffett says better reflects company performance, fell 29 percent to $3.44 billion, or $2,094 per Class A share, from $4.85 billion, or $2,951 per share.
Berkshire said it incurred $1.95 billion of after-tax underwriting losses attributable to the hurricanes and earthquake. [...]
Berkshire Hathaway’s Third-Quarter Operating Profit Falls 29%
Berkshire Hathaway's (NYSE:BRK-A)(NYSE:BRK-B) third-quarter operating earnings declined to $3.44 billion, down from $4.85 billion in the year-ago period, due primarily to large insurance underwriting losses from natural disasters. Third-quarter weather events were particularly troublesome for Berkshire Hathaway Reinsurance, which posted a massive $1.3 billion pre-tax underwriting loss in the third quarter.[...]
- Insurance -- $395 million net loss
- Manufacturing, service, and retailing -- $1.7 billion profit
- BNSF railroad hauls it in -- $1 billion profit
- Utilities and energy -- $963 million profit
- Finance and financial products -- $341 million profit
- Berkshire cash pile -- $109 billion
Under the Hood of Berkshire Hathaway’s Pilot/Flying J
Pilot was founded in 1958 when Jim Haslam purchased a single gas station for $6,000. It dramatically increased in size when it purchased competitor Flying J out of bankruptcy. Because the bankruptcy proceedings are public, there’s valuable information within the filings made at the time, 2009. A value of $3.3 billion was placed on Pilot and Flying J was to be acquired for $300 million – $500 million in cash plus equity in the new company, valuing it in total at $1.8 billion. Post-merger, the combined entity had revenue in excess of $30 billion and would reasonably have an enterprise value of about $5.1 billion. [...]
The segment of the North American gas station industry has three main competitors: Pilot/Flying J, Love’s, and TravelCenters of America. Pilot/Flying J is the largest with $20 billion in revenue and 750 locations, while family-owned Love’s is not far behind at 430 locations and $16 billion in revenue. Travel Centers of America is the only one of the three that’s publicly traded and has 250 locations and $6 billion in annual revenue. [...]
That still leaves the question of how much Pilot is earning and what it’s worth. Margins are slim in this business – operating income is probably no more than 2% of sales, or maybe $500 million a year in total. Using a multiple of 12x operating income (a discount of about a third to the higher margin consumer gas stations of Couche-Tard and Casey’s) gives an enterprise value of $6 billion. That is roughly consistent with the value placed on the company in the Flying J bankruptcy filings in 2009. Subtracting $2.5 billion in estimated remaining debt would value the equity at about $3.5 billion. [...]
PacifiCorp facing regulatory blowback on wind power plans
Staff advisers at Oregon's utility regulator threw cold water on PacifiCorp's plan to spend $3.5 billion, one of its biggest upgrades ever, on wind turbines and a new transmission line.
The Public Utility Commission staff say the utility had failed to justify the need for the massive capital investments, whether to meet its capacity, energy or reliability needs. [...]
"There is no need for the proposed resources at all," said the staff recommendation. "PacifiCorp's existing resources are able to meet its resource needs."
That's not a universally held opinion. Some environmentalists support the wind investments, if not the transmission. And PacifiCorp insists it needs it all. But if commissioners agree with its advisory staff, it would be a big setback for the company. [...]
Carpet maker Shaw acquires Chattanooga-based digital sample provider
Shaw Industries, the country's biggest carpet maker, is buying a Tennessee-based producer of digital carpet samples and design tools.
Shaw, a subsidiary of Warren Buffett's Berkshire Hathaway, acquired Tricycle Inc. for an undisclosed sum.
Tricycle was founded in Chattanooga in 2002 and works with commercial manufacturers, interior designers and architects to visualize carpet designs and colors digitally. The company says its three-dimensional, color corrected digital images reduce waste by removing the need to produce physical samples. [...]
Warren Buffett – Mistakes of the First Twenty-Five Years
One of the best resources available to investors are the Berkshire Hathaway shareholder letters. One of my personal favorites is the 1989 letter in which Warren Buffett wrote a piece called – Mistakes of the First Twenty-five Years (A Condensed Version). It’s a great insight into how even the greatest investors can make mistakes. The lesson of course is not to make the same mistake twice. But it seems even Buffett did make the same mistake over and over in buying some of his cigar-butt companies simply because they were cheap. This of course changing when he met Charlie Munger and he coined the phrase, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
Let’s take a look at some of the mistakes that Buffett highlighted from his first 25 years of investing [...]
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