Berkshire Hathaway‘s (BRKA +1.43%) (BRKB +1.33%) first fiscal quarter with CEO Greg Abel at the helm is officially in the books. There have been some pretty big changes. The conglomerate completely exited 16 different equity holdings that it bought during the Buffett era, including long-held trades like Visa and Aon. Abel also tripled the size of its stake in Alphabet, making it the organization’s seventh-biggest position.
For all the changes made during the first three months of the year, however, it’s perhaps the things that didn’t change that are of most interest to investors. Namely, Berkshire Hathaway Energy remains a major cash cow for this company.
Berkshire Hathaway Energy?
Yes, Berkshire Hathaway owns a utility company called Berkshire Hathaway Energy, although its customers probably don’t know it by that name. PacifiCorp, Northern Natural Gas, NV Energy, MidAmerican, BHE, and AltaLink are just some of the consumer-facing electricity and natural gas providers operating under the parent company’s umbrella.
Today’s Change
(1.33%) $6.40
Current Price
$486.38
Key Data Points
Market Cap
$1.0T
Day’s Range
$479.49 – $487.19
52wk Range
$455.19 – $516.85
Volume
4.3M
Avg Vol
4.8M
Gross Margin
23.70%
It’s a surprisingly big contributor to the conglomerate’s total bottom line. Of the $10.1 billion worth of net operating earnings attributable to Berkshire Hathaway shareholders in the first quarter of this year, $1.1 billion of it came from Berkshire Hathaway Energy, more or less matching this arm’s total profit production — adjusting for inflation-driven price increases — for the past several years.
Image source: Getty Images.
It doesn’t necessarily always have a major effect on the company’s bottom line, to be clear. In a good (bullish) year, gains on Berkshire Hathaway’s individual stock positions can be far greater.
Berkshire Hathaway Energy brings something else to the table that shareholders often don’t fully appreciate until things turn ugly, however. That’s the fact that it’s just as productive in lousy economies and bear markets as it is when times are good, smoothing out the rough edges for the entirety of Berkshire’s insurance-centric operation.
Expect more of the same
This consistent contribution is unlikely to be disrupted in the foreseeable future for a handful of reasons.
Chief among these reasons is the fact that individuals and companies will always need electricity. Indeed, this business’ growth is poised to accelerate over the next several years due to the artificial intelligence data center industry’s soaring demand for power. Berkshire Hathaway Energy is responding to this specific need.
The other big reason Berkshire is likely to continue investing in — and extracting between $3 billion and $4 billion in yearly operating profits from — Berkshire Hathaway Energy is that this is how Abel first joined the Berkshire Hathaway family. Abel was already an executive with MidAmerican Energy when Berkshire acquired it in 2000. He’s familiar with all of the conglomerate’s businesses, but is obviously well-versed in this one, which can consistently account for a tenth or more of its operating income outside of Berkshire Hathaway’s investment gains.
More to the point for interested investors, with Abel seemingly as disinterested in buying new stocks as Warren Buffett was when he stepped down from his role as CEO at the end of last year, don’t be surprised if Berkshire starts using its nearly $400 billion worth of idle cash to expand well-proven, cash-generating businesses like Berkshire Hathaway Energy. It certainly wouldn’t be a bad use of the money, all things considered.
