^{Source: Predictions based on analysts’ consensus from Visible Alpha}

Berkshire Hathaway (BRK.A) Financial Results: Analysis

Berkshire Hathaway, Inc. (BRK.A, BRK.B) reported Q2 FY 2022 earnings that were far below analysts’ expectations. Earnings per share (EPS) were a loss of $29,754, compared to analysts’ estimate of a $4,079 loss. In the same period of 2021, Berkshire reported positive EPS of $18,488.

Revenues for Q2 FY 2022 were $9.261 billion, down by 90.4% year over year (YOY) and missing the estimate by 83.9%. Note that this revenue figure is the sum of operating revenues from Berkshire’s operating subsidiaries ($76.180 billion) and the pretax loss on Berkshire’s investments and derivative contracts (-$66.919 billion). In Q2 FY 2021, these figures were $69.114 billion and a gain of $27.394 billion, respectively, for a total of $96.508 billion.

In Q2 FY 2022, Berkshire Hathaway recorded an after-tax net loss of $53.038 billion on investments and derivative contracts. The company reported a gain of $21.408 billion in the same period of 2021.

Operating earnings, which exclude these gains, were $9.283 billion, compared to $6.686 billion in the same quarter of 2021. This was an improvement of 38.8% YOY and 35.2% above the estimate of $6.866 billion. The operating earnings figures that Berkshire reports are calculated after income taxes and exclude earnings attributable to non-controlling interests.

Berkshire spent approximately $1.0 billion on share repurchases (stock buybacks) in Q2 FY 2022. This brought the total for the first half of 2022 to about $4.2 billion.

Over the past year, through Aug. 5, 2022, Berkshire Hathaway’s shares have provided a total return of 4.33%, outperforming the S&P 500’s total return of -5.01%.

BRK.A Operating Earnings

For many years, Chairman and CEO Warren Buffett has urged investors to focus on Berkshire’s operating earnings from its wholly owned operating subsidiaries. These units encompass a broad spectrum of industries—most notably insurance, railroads, utilities, and energy.

However, pursuant to recent changes in GAAP reporting rules, the quarterly mark-to-market fluctuations in the value of Berkshire’s investment portfolio must be reflected on the company’s income statement, a rule that Buffett has criticized as introducing misleading volatility into the company’s reported financial results. A prime example is indicated above, with Berkshire’s after-tax earnings on its investment portfolio having swung from a gain of $21.408 billion in Q2 FY 2021 to a loss of $53.038 billion in Q2 FY 2022.

Meanwhile, also as noted above, operating earnings increased from $6.686 billion in Q2 FY 2021 to $9.283 billion in Q2 FY 2022, an improvement of 38.8%. Improvements were recorded across all six of Berkshire’s major reporting segments, as detailed below.

• Insurance underwriting earnings rose from $376 million in Q2 FY 2021 to $581 million in Q2 FY 2022 (+54.5%).
• Insurance investment income increased from $1.219 billion to $1.906 billion (+56.4%).
• Railroads improved from $1.516 billion to $1.664 billion (+9.8%).
• Utilities and energy increased from $740 million to $766 million (+3.5%).
• “Other businesses,” which include manufacturing, services, and retailing, rose from $3.004 billion to $3.249 billion (+8.2%).
• “Other” went from a loss of $169 million to a gain of $1.117 billion. This category mainly reflects foreign currency gains and losses on non-U.S. dollar denominated debt. 

Berkshire Hathaway’s next earnings report, for Q3 FY 2022, is likely to be released on Saturday, Nov. 5, 2022. The report for the same period of 2021 was released on Nov. 6, 2021, the first Saturday of that month.