Berkshire Q3 Earnings Show Loss on Catastrophe, Unrealized Market Losses

Stock’s fair value estimate unchanged; improvement in company’s income yield expected this year and next.

Greggory Warren, CFA 10 November, 2022 | 10:45AM
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There was little in wide-moat Berkshire Hathaway’s (BRK.A/BRK.B) third-quarter results that would alter our long-term view of the firm. We are leaving our US$535,000 (US$357) fair value estimate per Class A (B) share in place despite the equity and credit market selloff this year. We view the unrealized losses the firm has recorded this year as near-term mark-to-market adjustments that will likely reverse themselves over time. Berkshire has historically invested more heavily in equities than its insurance industry peers and tends to be a buy-and-hold equity investor. The firm’s rock-solid balance sheet and ability to deploy capital in the most attractive options it can find at any given time also separate it from its peers. We expect Berkshire to see a meaningful improvement in its income yield this year and next, with the company’s cash balances (which are mainly invested in U.S. Treasuries) yielding more as interest rates have risen, with the benchmark federal-funds rate currently targeted at 3.75%-4.00% (levels not seen since before the 2008-09 financial crisis).

Third-quarter reported revenue, which includes unrealized and realized gains/losses from Berkshire’s investment portfolios, declined 15.9% to US$63.5 billion from US$75.5 billion in the prior year’s period. Excluding the impact of investment and derivative gains/losses and other adjustments, third-quarter operating revenue increased 9.0% to US$76.9 billion. Operating earnings, exclusive of the impact of investment and derivative gains/losses, increased 20.0% year over year to US$7.8 billion during the September quarter, with almost all of the company’s segments posting solid operating earnings growth (with catastrophe losses tied to Hurricane Ian’s impact on all three of Berkshire’s insurance units). When including the impact of the investment and derivative gains/losses (which amounted to US$10.4 billion during the third quarter), reported operating earnings declined to negative US$2.7 billion from positive US$10.3 billion in the prior year’s period.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Berkshire Hathaway Inc Class A639,500.00 USD1.66Rating
Berkshire Hathaway Inc Class B424.44 USD1.35Rating

About Author

Greggory Warren, CFA

Greggory Warren, CFA  Greggory Warren, CFA, is a financial services sector strategist for Morningstar.

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