“Over the years, I have made many mistakes. Consequently, our extensive collection of businesses currently consists of a few enterprises that have truly extraordinary economics, many that enjoy very good economic characteristics, and a large group that are marginal. Along the way, other businesses in which I have invested have died, their products unwanted by the public. Capitalism has two sides: The system creates an ever-growing pile of losers while concurrently delivering a gusher of improved goods and services. Schumpeter called this phenomenon ‘creative destruction.’”
— Warren Buffett, 2022 letter to shareholders
When you see a person every day, or even once every few months, chances are that you will not notice the subtle impacts of the passage of time. But if you have not seen a friend or relative for five or ten years, you’re likely to be surprised. The accumulation of small changes over a long period of time can make a person almost unrecognizable.
This effect is also apparent when looking at a company like Berkshire Hathaway. It is not that individual business units within Berkshire change that much over time. Warren Buffett tends to stick to businesses that are fairly mature and stable and he hardly ever sells a business. The effect is produced by acquisitions that accumulate over time and make the overall conglomerate almost unrecognizable. For example, take a look at the following summary of Berkshire’s non-insurance operations in 1999:
This is the data I had in early 2000 as I built my initial position in the company. With the exception of Buffalo News, which was sold in 2020, Berkshire still operates the businesses in each of the segments listed in the 1999 annual report. However, all of these segments have been subsumed into larger groupings due to acquisitions made over nearly a quarter century. As much as I would like to have access to the financial data for See’s Candies today, it is just a small part of Berkshire’s current retailing segment. The same is true for the other segments of 1999.
Fast forward to the 2022 annual report. Here is the breakdown given for Berkshire’s manufacturing, service, and retailing group:
Within the two groups, results are further broken down into slightly more granular categories, but we are still faced with a very high-level view of Berkshire’s non-insurance operations. On the positive side, the size of Berkshire’s operations makes it unnecessary to expose granular information on individual businesses that could be helpful to competitors. On the negative side, shareholders see a cloudier view. However, with some work, we can still monitor trends in the information that Berkshire does provide to see how these businesses are doing, at least in aggregate.
At a very high level, we can look at quarterly net earnings for the group since 2018. This is useful since we can spot the slowdown during the steep pandemic-era decline in 2020 as well as the sharp recovery between mid-2020 and mid-2021. Since then, quarterly earnings growth has been relatively muted.
This article presents a summary of Berkshire’s manufacturing, service, and retailing group based on how I follow these business units on a quarterly basis. After going through the data and presentation provided in Berkshire’s filings, I will provide a longer term view of the group.
Third Quarter and Year-to-Date Results
Let’s start with an overview from Berkshire’s Q3 report showing revenue and earnings for the group for the third quarter and first nine months of the year:
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Individuals associated with The Rational Walk own shares of Berkshire Hathaway.