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How Berkshire Hathaway Makes Money

Berkshire's manufacturing is largest source of earnings before taxes

Berkshire Hathaway Inc. (BRK.A; BRK.B) is a diversified holding company whose subsidiaries engage in insurance, freight rail transportation, energy generation and distribution, services, manufacturing, retailing, and other activities. Berkshire also holds a large portfolio of equity securities and derivatives, which heavily impact the company's reported financial performance.

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.

Key Takeaways

  • 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 business has begun to recover from the initial shock of the COVID-19 pandemic and its adverse impacts.
  • Berkshire announced in mid-February 2021 that Tom Murphy had resigned from the company's board of directors.

Berkshire Hathaway’s Financials

Berkshire announced in late February financial results for its 2021 fiscal year (FY), which ended Dec. 31, 2021. Total revenue attributable to its core business operations rose 12.5% to $276.1 billion. However, including gains made on its investment and derivative contracts, the company's revenue rose 23.9% to $354.6 billion.

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 the company's earnings being significantly more volatile than they otherwise would be.

Berkshire's net earnings attributable to its shareholders rose 111.2% to $89.8 billion in FY 2021. Earnings before taxes (EBT), which the company uses as a profitability metric for its individual business segments, were $111.7 billion in FY 2021, up 100.5% compared to the previous year.

The company said that the COVID-19 pandemic adversely impacted nearly all of its business operations in 2020. The growth in Berkshire's revenue and earnings in FY 2021 are a reflection of the company's ongoing recovery from the pandemic shock. However, Berkshire noted that the long-term effects of the pandemic on demand for certain products and services is uncertain.

Berkshire Hathaway’s Business Segments

Berkshire provides a breakdown of six major business segments for revenue and EBT, a measure of profitability before income taxes. Total revenue and EBT for these segments in FY 2021 was $276.4 billion and $32.2 billion, which does not include gains and losses from Berkshire's portfolio of investments and derivatives. To reconcile the company's total business segment revenue with its total consolidated revenue mentioned in the above section of this story, a "corporate, eliminations and other" adjustment of $327 million must be subtracted from the business segment revenue of $276.4 billion.

Insurance

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
  • The insurance business also includes investment income

Revenue grew 8.3% in FY 2021 to $75.1 billion as EBT fell 3.0% to $6.6 billion. Revenue comprised more than 27% of the total and EBT about 20% of total profit.

BNSF Railway

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 rose 11.6% in FY 2021 to $23.3 billion as EBT grew 15.7% to $7.9 billion. Rail transport comprised only 8% of Berkshire's total revenue, but it generated over 24% of total EBT.

Berkshire Hathaway Energy

Berkshire Hathaway Energy is a global energy company with subsidiaries that generate and distribute energy and engage in real estate brokerage activities. The segment's revenue rose 18.8% in FY 2021 to $25.0 billion as EBT grew 28.4% to $3.2 billion. Revenue comprised 9% of companywide revenue and EBT comprised about 10% of total EBT.

Manufacturing

Berkshire's manufacturing businesses fall into three categories: industrial products, building products, and consumer products. Manufacturing revenue grew 16.3% in FY 2021 to $68.7 billion as EBT rose 22.9% to $9.8 billion. Manufacturing accounted for 25% of total revenue and for about 31% of total EBT.

McLane Company

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 grew 5.6% in FY 2021 to $49.5 billion as EBT declined 8.4% to $230 million. McLane comprises about 18% 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 as well as media businesses and logistics businesses. The retail businesses include automotive products, home furnishings, and other operations that sell various consumer products. Segment revenue rose 23.6% in FY 2021 to $34.8 billion while EBT rose 70.5% to $4.5 billion. The segment comprised about 13% of total revenue and about 14% 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 American Express Co. (AXP). That portfolio posted a gain of $78.5 billion in FY 2021, up 92.8% from the gain of $40.7 billion in the previous year.

Berkshire Hathaway’s Recent Developments

On Feb. 14, 2022, Berkshire Hathaway announced that Tom Murphy had resigned from the company's board of directors. Murphy had served on the company's board since 2003.

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.

Article Sources

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  1. Securities and Exchange Commission. "Berkshire Hathaway Inc. Form 10-K for the fiscal year ended Dec. 31, 2021," Page K-1.

  2. Securities and Exchange Commission. "Berkshire Hathaway Inc. Form 10-K for the fiscal year ended Dec. 31, 2021," Page K-72.

  3. Berkshire Hathaway Inc. "Form 10-Q for the quarterly period ended June 30, 2020," page 42.

  4. Securities and Exchange Commission. "Berkshire Hathaway Inc. Form 10-K for the fiscal year ended Dec. 31, 2021," Page K-75.

  5. Securities and Exchange Commission. "Berkshire Hathaway Inc. Form 10-K for the fiscal year ended Dec. 31, 2021," Page K-110.

  6. Securities and Exchange Commission. "Berkshire Hathaway Inc. Form 10-K for the fiscal year ended Dec. 31, 2021," Pages K-39 and K-109.

  7. Securities and Exchange Commission. "Berkshire Hathaway Inc. Form 10-K for the fiscal year ended Dec. 31, 2021," Pages K-41 and K-109.

  8. Securities and Exchange Commission. "Berkshire Hathaway Inc. Form 10-K for the fiscal year ended Dec. 31, 2021," Page K-109.

  9. Securities and Exchange Commission. "Berkshire Hathaway Inc. Form 10-K for the fiscal year ended Dec. 31, 2021," Page K-19.

  10. Securities and Exchange Commission. "Berkshire Hathaway Inc. Form 10-K for the fiscal year ended Dec. 31, 2021," Pages K-19 and K-21.

  11. CNBC. "Berkshire Hathaway Portfolio Tracker," Accessed Mar. 4, 2021.

  12. Berkshire Hathaway Inc. "News Release dated Feb. 14, 2022."

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