What Berkshire Hathaway’s Earnings Say About the Economy

November 6, 2015, 10:58 PM UTC
Squawk Box - Season 20
SQUAWK BOX -- Pictured: Warren Buffett, chairman and CEO of Berkshire Hathaway in an interview on May 4, 2015 -- (Photo by: Lacy O'Toole/CNBC/NBCU Photo Bank via Getty Images)
Photograph by Lacy O'Toole — CNBC/NBCU Photo Bank via Getty Images

Warren Buffett’s conglomerate Berkshire Hathaway saw its net income surge in the third quarter, more than doubling to $9.43 billion. Berkshire is about as bellweather as they come. It ranks No. 4 on the Fortune 500. And its business is generally more focused on the U.S. than other large conglomerates.

So good earnings news from Berkshire (BRKA), especially on the same day where the jobs numbers were a lot stronger than expected, and showed signs that wages are finally increasing, would seem to be a really good sign for the economy.

And it is, though not as good as it seems.

A large chunk of Berkshire’s earnings, $4.4 billion, in the third quarter came from a non-cash gain on Berkshire’s investment in Kraft Heinz Co., which was generated when Mr. Buffett helped to orchestrate the tie up of the two companies. So I guess that signals the market is healthy, especially for big deals, or was back in July, but doesn’t say a lot about the economy.

Take that out, and Berkshire’s operating profit actually fell 4% in the third quarter to $4.55 billion. That doesn’t sound so great. But the drop there was from the company’s insurance business. Car insurer Geico saw a 34% decline. And car sales have been up, so that could be a problem at Geico, not actually reflective of the economy.

As for Berkshire’s non-insurance operating businesses, which are really the most economic sensitive, were up 5% in the quarter. But even there it was a mixed bag. Revenue from Berkshire’s retailing and services businesses, which includes NetJets and Dairy Queen, rose 76%, in part because of acquisitions. Its energy and utility business was also up, but only 6%. But sales at the company’s most economically sensitive businesses, its manufacturing division and its railroad Burlington Northern Santa Fe were both down.

So as Berkshire goes as a bellweather for the economy, it’s not actually ringing all that loudly.

(Reuters contributed to this article)

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