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There are a few ways to look at Berkshire Hathaway’s (NYSE: BRK-B) latest third quarter results. First, there’s the bottom line, which showed strong growth in both revenues, which rose 15% to $59 billion, and net income, which more than doubled to $9.43 billion.
But since Warren Buffett’s holding company is not a single business but rather a composite of investments in a diverse array of sectors from railroads to insurance, it’s particularly important to understand the breakdown of those numbers.
In the latest quarter, Berkshire achieved such strong earnings growth due to a $4.4 billion gain on its stake in the newly merged Kraft Heinz (NASDAQ: KHC). On an operating basis, excluding that one-time gain, Berkshire’s income actually declined a bit. This suggests that it wasn’t the best quarter for the company.
There is also Berkshire Hathaway’s performance as a window into the American economy. The Omaha, Neb. company holds investments in both manufacturing and railroad businesses, which both saw lower revenues in the quarter, as did its holding in car insurer Geico, which saw a particularly steep drop in revenues. All these numbers seem to suggest some weaknesses in multiple pockets of the economy.
Berkshire Hathaway shares have grown almost 70% over the past five years and more than 132% over the past 10 not on the strength not of any single holding, but of its overall portfolio. And by that measure, you’d have to call this quarter a success, because even though many of its holdings showed weak performance, its overall results were bolstered largely by a single holding in Kraft. This successful diversification is what Berkshire does so well, holding investments from a variety of sectors that at any given time are performing differently but, as a group, are growing. You could say that in the most recent quarter, Berkshire Hathaway’s earnings were saved by Kraft Heinz.
But, you should also note that Berkshire Hathaway’s stock isn’t doing especially well of late. It is down more than 10% for the year. Maybe it’s a blip, maybe it’s the start of a longer downturn, but it does underscore that even oracles are wrong once in a while.
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