Kraft Heinz Merger Powers Berkshire Hathaway Earnings Q3 2015

  • Gains from the sale of Heinz to Kraft powered Berkshire-Hathaway earnings.
  • The insurance units now represent 80% of operating revenue.
  • Each Class A share is now worth $203,000.

Kraft Heinz (NASDAQ:KHC) powered BRK.A (NYSE:BRK.A) to what looked like a stellar third quarter, with earnings of $5,734 per A share, and $3.82 for each B share, on revenues of $59.989 billion.

The total Berkshire Hathaway earnings on each Class A share beat estimates by $110.10. Each Class B BRK.B (NYSE:BRK.B) share is worth just 1/1,500th of a Class A.

Take out the $4.4 billion gain on the merger of Berkshire’s Heinz into Kraft, with the creation of Kraft-Heinz, and the earnings picture wasn’t quite as rosy, with operating earnings of $4.551 billion, or $2,769 for each Class A share, against $4.72 billion a year ago.

Looking at the company’s 8-K Report, it was the performance of the company’s insurance units that really stood out. There, revenue was up 22% over a year ago to $47.42 billion, representing over 80% of the company’s total revenue. Earnings attributable to the insurance units came to $11.444 billion, more than 25% of unit revenue.

The best known insurance unit is GEICO, the consumer-oriented auto insurance company originally created by General Electric (NYSE:GE), which uses a cartoon gecko with an Australian accent in its commercials, but Berkshire is also a major player in property and casualty insurance. The results from the various insurance units were not broken out in the report.

Analysts, most of whom have a buy rating on the stock, had been expecting just $1.81 in earnings for every B share.

Given that Berkshire-Hathaway is basically an insurance company with some interesting side bets (and the bet Buffett made in buying Heinz and taking it briefly private certainly paid off) what many analysts wanted to see was the company’s book value. This came in at $151,084 for each Class A share, up 3.3% since the start of the year.

The Class A shares traded at $203,100 at the close on Friday, which means that the price-to-book value of the stock is about 1.34. In after-hours trading the Class A shares were down $100, just .05%, and the Class B shares were down 79 cents or .58%.

Since the B shares are more affordable and widely traded, they are far more volatile than the original A shares. The Class B shares were created in 1996 and said to be worth 1/30th of an A share. Those shares split 50:1 in 2010, creating the current 1/1,500th ratio. Buffett said at the time he created the B shares that he did not want to split the main stock, because he wanted to attract like-minded long-term investors to it.

Since the 2010 split, the B shares are up 110%, and since the original 1996 creation of the B shares the A shares are up 570%, double the gain of the Dow Jones Industrial Average in that time.

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