Berkshire Hathaway Inc. (NYSE:BRK.A) Shifts From Insurance-Driven Business to Operating Business

February 7, 2017

Portfolio Manager Doug Greiner of Wilbanks, Smith & Thomas Asset Management says Berkshire Hathaway Inc. (NYSE:BRK.A) is shifting to more of an operating business, which is bringing in strong growth prospects such as Precision Castparts.

Berkshire is becoming less of an insurance-driven business model and more of an operating business. The noninsurance business did $3 billion of operating income in 2004 versus $25 billion in 2015, an increase from 41% to 75% of total operating income. We welcome this shift for the additional growth prospects it brings.

In particular, we are excited about the prospects for Precision Castparts. Precision Castparts is the world leader in structural investment castings, forged components and airfoil castings for aircraft engines and industrial gas turbines. Airbus (EPA:AIR), Boeing (NYSE:BA), GE (NYSE:GE), Rolls-Royce (LON:RR) and many other leading manufacturers depend on Precision Castparts for critical airframe, engine, power generation, medical and general industrial components. With few exceptions, every aircraft in the sky flies with parts made by Precision Castparts.

Precision Castparts has achieved solid top-line and bottom-line growth, not only through its legacy operations but also through acquisition of businesses specifically targeted to complement those operations. Fiscal 2015 included the contribution of seven businesses acquired after the beginning of fiscal 2014 and two businesses acquired in fiscal 2015. Fiscal 2013 was busier than fiscal 2014 in terms of the number of acquisitions.

The acquisition strategy is not a free-for-all. Management is a very disciplined buyer. To date, the company’s acquisitions have been immediately accretive to earnings with post-acquisition synergies generating increased shareholder value. The acquisition story is not over. The company is communicating no shortage of acquisition candidates for continued growth in the years ahead.