Key Takeaways

  • Analysts estimate GAAP EPS of $22,419.70 vs. $8,607.54 in Q2 2019.
  • Operating earnings expected to post small decline.
  • Revenue expected to decline sharply amid COVID-19 health crisis.

Berkshire Hathaway Inc.'s (BRK.A) GAAP earnings are about as volatile as the stock market, especially in a pandemic. That's because Berkshire owns a massive portfolio of equities worth hundreds of billions of dollars along with its diverse holdings of operating companies. The COVID-19-induced market crash hit that investment portfolio hard in the first quarter.

Investors will be looking to see how Berkshire Hathaway's portfolio and operating businesses affected the company's bottom line when it reports earnings for Q2 FY 2020. The company has yet to announce when it will release its Q2 report, but analysts estimate it may be August 8, 2020. Analysts expect GAAP earnings to rise sharply even as total revenue declines (YOY).

Investors also will be interested in another key metric in the Q2 report: operating earnings, which give a better picture of how Berkshire Hathaway's broad range of operating business performed excluding the impact of its investment portfolio. Analysts estimate operating earnings will post a small decline for the quarter.

Berkshire Hathaway's stock performed in tandem with the broader market for most of the past year, including during the market crash that began in late February and during the initial stages of the stock market's rebound until April. But since then, the broader market has raced ahead of Berkshire Hathaway and its stock has dramatically underperformed. As a result, Berkshire has posted a total return of -6.2% compared to the S&P 500's total return of 7.9% over the past 12 months.

One Year Total Return for S&P 500 and Berkshire Hathaway
Source: TradingView.

Berkshire Hathaway's share performance began to deviate from the rest of the market around when it reported a net loss per class-A share for Q1 FY 2020 on April 27. The company reported EPS of -$30,653.00 compared to $13,209.37 a year earlier. Revenue from the company's operating businesses rose 1.0% to $61.3 billion, but total revenue was negatively impacted by a $70.3 billion loss on the company's portfolio of investments and derivative contracts.

The large loss on investments and derivative contracts reflected the market crash that began in late February. Prior to that crash, Berkshire Hathaway reported GAAP earnings per share (EPS) growth of 216.0% to a total of 17,909.42 for Q4 FY 2019.  Total revenue rose 242.7%. But those strong results were not enough to keep the company's shares from plunging with the rest of the stock market.

Analysts predict a return to profitability in Q2 FY 2020 as the rebounding stock market lifts the company's investment portfolio. GAAP EPS is expected to rise 160.5% YOY for Q2 FY 2020. However, total revenue is expected to fall 27.2%.

Berkshire Hathaway Key Metrics
  Estimate for Q2 2020 (FY) Q2 2019 (FY) Q2 2018 (FY)
Earnings Per Share ($) (class A shares) $22,419.70 $8,607.54 $7,301.00
Total Revenue ($B) $53.6 $73.7 $68.6
Operating Earnings ($B) $5.9 $6.1 $6.9

Source: Visible Alpha, YCharts.

As mentioned above, investors will also be focused on the company's operating earnings. Berkshire Hathaway is a large diversified holding company whose subsidiaries engage in insurance, freight rail transportation, energy generation and distribution, manufacturing, and retailing. Operating earnings provide a more accurate measure of how these businesses performed by excluding the impact of the company's portfolio of investments and derivative contracts. For example, the value of its investments in equity securities fell 27.1% YOY to $180.8 billion as of March 31, 2020.

Berkshire Hathaway reported a 5.7% increase in operating earnings for Q1 FY 2020. It was a definite improvement from the 11.6% decline posted in Q4 FY 2019, but a slowdown from the 14.2% increase for Q3 FY 2019. Analysts expect operating earnings to decline 3.4% for FY Q2 2020 amid the ongoing pandemic. This estimated drop is modest compared to the drastic declines in operating earnings experienced by many companies in Q2. But many of Berkshire Hathaway's operating businesses are closely tied to the economy, and earnings could worsen if the U.S. economy contracts further.