Berkshire Hathaway earnings miss expectations by $671 per share

The second quarter net income was lower at $4.01 billion compared to $6.4 billion during Q22014. On Friday, Berkshire Class A shares closed down $187.24 at $215,462.76, and its Class B shares rose 20 cents to $143.55. Net earnings per Class A equivalent share were $2,442 (down from $3,889 during the second quarter of 2014). That’s more than twice what Buffett paid.

Revenue in the second quarter totaled $US51.4 billion. Berkshire owns more than 25% of Kraft Heinz. Meanwhile, General Re reported its first decline in earned premiums in two years primarily due to pricing pressure within the property and casualty markets.

To counteract that trend, Berkshire has begun to focus on underwriting policies directly for businesses. The company reported a combined underwriting loss of $38 million, stemming from a decline in the results at GEICO, and a $411 million loss for Berkshire Hathaway Reinsurance Group. The contribution from the Geico auto insurer plunged to $53 million from $393 million on the increased frequency and cost of claims.

“This quarter to me looked weak, and it was an insurance-driven weakness”, Cathy Seifert, an analyst with S&P Capital IQ, said in a phone interview on Friday evening. There are also very few analysts which will cover it. The reason for hard comparisons and a lack of coverage is far from a lack of interest – there are just too many moving parts, and Team Buffett has warned on numerous occasions that it is the quarterly book value which should matter the most. On a year-to-date basis, revenue was down 2%, but pretax earnings were up 21%. Gains from investments fell to $236 million, from $1.96 billion a year ago.

“We are implementing premium rate increases as needed” at Geico, Berkshire said in a regulatory filing.

Carloads at Buffett’s railroad slipped 0.1 per cent in the second quarter from a year earlier. This should all contribute to consolidated annual EBITDA growth of 6.7% over the next five years, with EBITDA margins hovering around 40%. While those operating businesses provide a steady stream of earnings, the company’s results can fluctuate widely depending on the performance of investments and insurance underwriting. That’s a 15 per cent increase from a year earlier.

Berkshire’s non-insurance operating companies performed well across the board, with each segment reporting higher pre-tax income. The insurance-investment income fell to $977 million from $1.131 billion. After backing H.J. Heinz’s merger with Kraft Foods Group Inc.in July, Berkshire holds common shares in Kraft Heinz Co. valued at about $26 billion.