Berkshire earnings for the third quarter arrives Saturday after Warren Buffett’s Berkshire Hathaway (BRKB) further loaded up on Western Petroleum (OXY) during the quarter.
Revenue and earnings for Buffett’s Berkshire derive from various operating companies and equity investments.
In Q2, operating earnings — Buffett’s preferred measure for assessing performance — rose nearly 39% from a year ago. The conglomerate’s report could show Q3 operating earnings seeing some impact from rising interest rates as well as Hurricane Ian, which slammed Florida in late September. Berkshire’s operating earnings are a mashup of profits from various businesses it owns including insurance, railroads and utilities.
For Q2, the company had posted a $53 billion loss on investments after stocks fell into a bear market, brought on by aggressive Fed rate hikes to tame rapid inflation. Investors will watch quarterly fluctuations in Berkshire’s equity investment portfolio Saturday. However, Buffett advised in a Q2 earnings release that “the amount of gains or losses in any given quarter is usually meaningless and delivers figures for net earnings per share that can be extremely misleading to investors who have little or no knowledge of accounting rules.”
Berkshire’s stock portfolio includes a monster stake in iPhone maker Apple (AAPL) besides a large and growing one in OXY stock. He kept grabbing more Occidental shares over Q3, taking his stake in the oil and gas producer to nearly 21% at the end of September. That came after Buffett’s Berkshire bought nearly 6 million OXY shares in Q1 as well as nearly 121 million more Chevron (CVX) shares as oil prices surged, after first buying CVX stock near the end of 2020. Stocks at large closed out a volatile Q3 lower, though Apple and Occidental ended a bit higher.
In terms of operating EPS, analysts polled by FactSet expect Berkshire to earn $2.81, down 2.3% vs. a year ago.
BRKB Stock, Warren Buffett Stock Holdings
Class-B shares of Berksire Hathaway fell nearly 2% to 283.71 on the stock market today. BRKB has been consolidating since March.
Earlier on Oct. 4, BRKB stock gapped up following news that Buffett’s named successor Greg Abel had bought shares worth $68 million, up sharply from a prior stake below $3 million.
Apple stock shed 4.2% to 138.88 Thursday. Western stock advanced 1.5% to 72.16. CLC gained 1.5% to 181.08.
Berkshire Hathaway Earnings Growth
When Berkshire reports for Q3, investors will also pay attention to share buybacks.
In Q2, the conglomerate spent roughly $1 billion in share repurchases, with the pace slowing from Q1, when it bought back $3.2 billion of its own stock.
Investors will additionally look for changes to Berkshire’s massive cash pile.
At the end of Q2, the cash balance stood at $105.4 billion. Until recently, the cash contribution to Berkshire earnings has been lackluster. But Edward Jones analyst James Shanahan says that rising rates are helping Berkshire’s cash balance to again earn a decent return.
Shanahan expects both higher interest rates and higher investment activity, including the Oct. 19 acquisition of insurer Alleghany, to fuel Berkshire earnings. He also forecasts more Berkshire share repurchases, which can help to drive earnings growth.
“BRK shares are now trading at approximately 1.25 times our estimate of book value as of year-end 2022, below the five-year average of almost 1.4 times,” the analyst wrote in an Oct. 19 note.
In July 2018, Berkshire loosened its policy on stock buybacks, which was tied to book value per share, or assets minus liabilities. That came after Buffett faced pressure to deploy more cash.
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