Berkshire Hathaway Inc. (BRK.A, BRK.B) swung to an unexpected loss in the third quarter as investment losses overtook a 20 percent gain in operating profit.
Berkshire lost $1,832 per A share, compared with estimates of a $3,409 profit. The company recorded an after-tax net loss of $10.449 billion on investments and derivative contracts, compared with a gain of $3.878 billion in the same period of 2021.
Revenue fell 15.9% to $63.469 billion, missing the consensus estimate by 14.9%. The revenue figure used by analysts is the sum of operating revenues from Berkshire’s operating subsidiaries ($76.934 billion) and the pretax loss on Berkshire’s investments and derivative contracts (-$13.465 billion). In Q3 FY 2021, the figures were $70.583 billion and a gain of $4.921 billion, respectively, for a total of $75.504 billion.
Operating earnings were $7.761 billion in Q3 FY 2022, compared with $6.466 billion in the same quarter of 2021. The operating earnings figures that Berkshire reports are calculated after income taxes.
Berkshire spent approximately $1.05 billion on stock buybacks in the quarter, bringing the total this year to about $5.25 billion.
Over the past year, through Nov. 4, Berkshire Hathaway’s shares have fallen 0.25%, outperforming a 18.16% decline in the S&P 500 Index.
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. Berkshire’s after-tax earnings on its investment portfolio swung to a loss of $10.449 billion in the quarter from a gain of $3.878 billion a year earlier.
Insurance underwriting losses widened to $962 million from $784 million.
Insurance investment income increased $1.408 billion from $1.161 billion.
Railroads dropped to $1.442 billion from $1.538 billion.
Utilities and energy increased to $1.585 billion from $1.496 billion.
“Other controlled businesses,” which include manufacturing, services, and retailing, rose to $3.247 billion from $2.706 billion.
“Non controlled businesses,” in which Berkshire’s ownership interest is between 20% and 50%, increased to $362 million from $310 million.
Major Drivers of Results
Berkshire said the pandemic continues to affect its operating businesses. In part, significant disruptions of supply chains and higher costs that emerged in 2021 have persisted in 2022.
Regarding its insurance operations, after-tax incurred losses attributable to significant catastrophe occurrences in Q3 FY 2022 were approximately $2.7 billion from Hurricane Ian in 2022 and $1.7 billion from Hurricane Ida and floods in Europe in 2021. Underwriting results in 2022 also were hurt by increases in private passenger automobile claims frequencies and severities.
After-tax earnings of railroad BNSF were down 6.2% in Q3 FY 2022, but up 4.0% in the first nine months of 2022, compared with 2021. These changes in 2022 reflected higher revenue per car/unit, lower overall freight volumes, and higher fuel and other operating costs.
Next Earnings Report
Berkshire Hathaway’s next earnings report, the annual report for 2022, is likely to be released on Saturday, Feb. 25, 2023. The annual report for 2021 was released on Feb. 26, 2022, the last Saturday of that month.