Berkshire Hathaway Q2 FY2021 Earnings Report Recap

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

Berkshire Hathaway (BRK.A) Financial Results: Analysis

Berkshire Hathaway, Inc. (BRK.A) reported Q2 FY 2021 earnings that far exceeded analysts' expectations. Earnings per share (EPS), up by 13.3% year over year (YOY), were 30.1% better than analysts' forecasts. Revenue for the quarter exceeded analysts' estimates by 15.2%, despite being down by 0.4% year over year (YOY).

Berkshire Hathaway recorded a net gain of $27.4 billion on investments and derivative contracts that was reflected both in earnings and in the revenue figures cited in the table above. This was down by 31.7% from the figure of $40.1 billion recorded in the same period of 2020. Operating earnings, which exclude this gain, were $8.2 billion, compared to a loss of $4.4 billion in the same quarter of 2020.

Berkshire hasn't made a large outside acquisition since its purchase of Precision Castparts in 2016, but has continued extensive stock buybacks with its large cash stockpile. It bought back $6 billion in stock in Q2, bringing the total for 2021 to $12.6 billion.

Over the past year, through the market close on Aug. 6, 2021, Berkshire Hathaway's shares have provided a total return of 36.9%, outperforming the S&P 500's total return of 32.4%.

BRK.A Operating Earnings

For many years, Chairman and CEO Warren Buffett has urged investors to focus on Berkshire's operating earnings from its diversified lineup of wholly-owned operating subsidiaries, which stretch across a variety of industries, most notably insurance, railroads, utilities, and energy. Meanwhile, pursuant to current 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 decried as introducing misleading volatility into the company's financial results.

Operating revenues increased from $56.8 billion in Q2 FY 2020 to $69.1 billion in Q2 FY 2021, an improvement of 21.7%. Meanwhile, operating expenses fell by 0.5% YOY, from $61.3 billion to $60.9 billion. A major factor in the improved expense picture was that the Q2 FY 2020 figure included a $10.6 billion one-time goodwill impairment mostly related to its acquisition of Precision Castparts.

The biggest drivers of the $12.3 billion YOY improvement in operating revenues came from an increase of $4.4 billion from Berkshire's manufacturing segments and a $2.9 billion improvement in its service and retailing segments. Its insurance, railroad, and energy segments also posted YOY revenue gains, reflecting the company's participation in the economic expansion.

Berkshire Hathaway's next earnings report (for Q3 FY 2021) is expected to be released on Oct. 30, 2021.