Berkshire Hathaway Inc. (BRK.A; BRK.B) is a diversified holding company whose subsidiaries engage in insurance, freight rail transportation, energy generation and distribution, manufacturing, and retailing. Berkshire also holds a large portfolio of equity securities and derivatives, which are reported separately from these main business activities.
The company's list of competitors reflects Berkshire's diverse family of businesses and includes insurance companies All State Corp. (ALL), Progressive Corp. (PGR), and Jefferies Financial Group Inc. (JEF); freight rail companies Union Pacific Corp. (UNP) and CSX Corp. (CSX); and utility and electricity companies General Electric Co. (GE) and NextEra Energy Inc. (NEE). Berkshire also competes with various manufacturers and retailers.
- Berkshire Hathaway owns businesses in insurance, rail transportation, energy generation and distribution, manufacturing, and retailing.
- Insurance generates the most revenue, but manufacturing generates the most earnings before taxes.
- Berkshire's operations have been adversely impacted by the COVID-19 pandemic.
- The company announced at the end of August 2020 that it had acquired 5% passive stakes in five leading Japanese trading companies.
- Berkshire Hathaway CEO Warren Buffett's unofficial successor will be Greg Abel, CEO of Berkshire Hathaway Energy and Vice Chairman in charge of noninsurance operations, according to an announcement from Vice Chairman Charlie Munger on May 1, 2021. No date was suggested for the succession.
Berkshire Hathaway’s Financials
Berkshire posted total revenue of $245.5 billion in its 2020 fiscal year (FY), which ended December 31, 2020. Total revenue fell 3.6% during the year amid the adverse economic impacts of the COVID-19 pandemic. The company noted that the crisis has adversely affected nearly all of its operations, but to varying degrees. Revenue and earnings from most of the company's manufacturing and its service and retailing businesses declined considerably in the second quarter, but several of these businesses improved significantly in the third and fourth quarters.
Net earnings fell 47.1% compared to 2019, for total net earnings of $43.3 billion in 2020. The significant decline was mostly driven by earnings declines across most of Berkshire's business segments, which were partially offset by a $40.7 billion gain before taxes and non-controlling interests in the company's large equity portfolio.
As of changes made to GAAP in 2018, the company is required to include unrealized gains and losses arising from changes in its investment portfolio in its reported earnings. This accounting change contributes to earnings being significantly more volatile than they otherwise would be.
Berkshire Hathaway’s Business Segments
Berkshire provides a breakdown of 6 major business segments for revenue and earnings before taxes (EBT), a measure of profitability before taxes. Total revenue and EBT for these segments in 2020 was $245.4 billion and $26.9 billion, which does not include gains and losses from Berkshire's portfolio of investments and derivatives.
Berkshire's underwriting businesses include:
- GEICO, private passenger automobile insurance
- Berkshire Hathaway Primary Group, property and casualty policies for commercial accounts
- Berkshire Hathaway Reinsurance Group, for excess-of-loss, quota-share, and facultative reinsurance (also includes investment income)
Revenue grew 2.5% in 2020 to $69.4 billion as EBT fell 3.3% to $6.8 billion. Revenue comprised more than 28% of the total and EBT about 25% of total profit.
Berkshire's freight rail transportation business operates one of the largest systems in North America. BNSF Railway ships coal as well as consumer, industrial, and agricultural products.
BNSF Railway's revenue fell 11.3% in 2020 to $20.9 billion as EBT fell 6.3% to $6.8 billion. Rail transport comprised only 9% of Berkshire's total revenue, but it generated over 25% of total EBT.
Berkshire Hathaway Energy
Berkshire Hathaway Energy is a global energy company with subsidiaries that generate, transmit, store, distribute, and supply energy. The segment's revenue rose 4.6% in 2020 to $21.0 billion while EBT fell 5.3% to $2.5 billion Revenue and EBT each comprised about 9% of the respective totals for each metric.
Berkshire's manufacturing businesses fall into three categories: industrial products, building products, and consumer products. Manufacturing revenue fell 5.8% in 2020 to $59.1 billion as EBT declined 15.9% to $8.0 billion. Manufacturing accounted for 24% of total revenue and for about 30% of total EBT.
McLane is a wholesale distributor that serves businesses including convenience stores, discount retailers, wholesale clubs, pharmacies, and more. It's separated into three units: grocery distribution, foodservice distribution, and beverage distribution. Revenue fell 7.2% in 2020 to $46.8 billion as EBT declined 12.8% to $251 million. McLane comprises about 19% of total revenue, but only about 1% of EBT.
Service and Retailing
The service businesses include grocery and food service distribution, professional aviation training, fractional aircraft ownership, and distribution of electronic components. The retail businesses include automotive and home furnishings. Segment revenue fell 4.4% in 2020 to $28.2 billion while EBT rose 2.9% to $2.6 billion. The segment comprised about 11% of total revenue and about 10% of total EBT.
Investment and Derivative Gains and Losses
Berkshire Hathaway also owns a large portfolio of equity securities and derivatives. Some of the company's top equity holdings include Apple Inc. (AAPL), Bank of America Corp. (BAC), and Coca-Cola Co. (KO). That portfolio posted a gain before income taxes and non-controlling interests of $40.7 billion during 2020. After income taxes and non-controlling interests, the portfolio posted a net gain of $31.6 billion.
Berkshire Hathaway’s Recent Developments
Berkshire announced in late August 2020 that it had acquired a little over 5% of the outstanding shares of five leading Japanese general trading companies:
- Itochu Corp. (8001), which trades textiles, metals, commodities, energy products, and more
- Marubeni Corp. (8002), which has business divisions in iron and steel, technology, energy, and more
- Mitsubishi Corp. (8058), which engages in IT and electronics, fuels, metals, machinery, and more
- Mitsui & Co. Ltd. (8031), which engages in iron and steel, machinery, chemicals, foods, energy, and more
- Sumitomo Corp. (8053), which imports and exports a wide variety of goods, including metals, machinery, food products, textiles, and more
Berkshire said that it intends to hold these investments for the long term.
How Berkshire Hathaway Reports Diversity and Inclusiveness
As part of our effort to improve the awareness of the importance of diversity in companies, we offer investors a glimpse into the level of transparency of Berkshire Hathaway and how that reflects its commitment to diversity, inclusiveness, and social responsibility. We examined the data Berkshire Hathaway releases, which show Berkshire Hathaway does not disclose any data about the diversity of its board of directors, C-Suite, general management, and employees overall. The data also show Berkshire Hathaway does not reveal the diversity of itself by race, gender, ability, veteran status, or LGBTQ+ identity.