Berkshire Hathaway (BRK.A) Q3 FY2021 Earnings Report Preview: What to Look For

Focus on BRK.A operating income

Key Takeaways

  • Analysts estimate EPS of $5,949.01 vs. $18,994.0 in Q3 FY 2020.
  • Operating income is expected to grow YOY at an accelerating rate relative to recent quarters.
  • Berkshire Hathaway's revenue is expected to decline at the fastest rate since Q1 FY 2020, the beginning of the COVID-19 pandemic.

Berkshire Hathaway Inc. (BRK.A) has staged a rapid recovery in 2021 from the most negative effects of the COVID-19 pandemic. In its latest reported quarter, Berkshire's core railroad, utility and energy businesses posted major profit increases as its manufacturing, service and retailing businesses also saw sizable recoveries in revenue and profit, some surpassing pre-pandemic levels. At the same time, insurance underwriting operating earnings fell year-over-year (YOY).

Investors will be watching to see if the Berkshire Hathaway's recovery has continued when the company reports financial results for Q3 FY 2021 on Nov. 6, 2021. The news may be mixed. Analysts expect the company to report YOY declines to both earnings per share (EPS) and revenue.

Investors, however, may get good news in Q3 from another key metric. Analysts expect Berkshire's operating income to grow at the fastest rate in at least two years. Operating income excludes income from Berkshire's massive investment portfolio. As a result, operating income is a way for investors to clearly assess how Berkshire's insurance, railway, energy, retail and other businesses have performed.

Berkshire Hathaway's class A shares have traded largely in line with the market in the past year. In early February 2020 the stock broke away, climbing to high points in May and June before pulling back slightly. Since then, Berkshire class A shares have generally traded sideways, although the stock has continued to outperform the broader market. These shares now provide a 1-year trailing total return of 40.0%, slightly ahead of the S&P 500's total return of 38.3% over the same time period.

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

Berkshire Hathaway Earnings History

Berkshire Hathaway's quarterly EPS was heavily impacted by the COVID-19 pandemic in Q1 FY 2020. The plunge in the stock market, and thus the value of the company's investment portfolio, helped inflict a record $49.7 billion loss at Berkshire. For that quarter, the company reported a loss per share of $30,653.00. Berkshire's performance swung to positive EPS in both Q2 and Q3 FY 2020, nearly doubling YOY. This momentum has proven difficult to maintain. While Berkshire posted its fifth straight quarter of positive EPS in Q2 FY 2021, the 13.3% gain was the weakest growth rate in several quarters. For Q3 2021, analysts expect EPS to plunge 68.7%.

Berkshire Hathaway's revenue growth has erratic in recent quarters. It posted negative revenue in Q1 FY 2020, followed by revenue gains of 31.4%, 24.8%, and 7.73% in Q2, Q3, and Q4 FY 2020, respectively. For Q2 FY 2021, revenue declined slightly. Analysts now expect revenue to plunge 21.4% YOY in Q3 FY 2021.

Berkshire Hathaway Key Stats
  Estimate for Q3 FY 2021 Q3 FY 2020 Q3 FY 2019
Earnings Per Share $5,949.01 $18,994.00 $10,119.00
Revenue (B) $74.2 $94.4 $75.7
Operating Income (B) $7.0 $5.4 $7.8

Source: Visible Alpha

The Key Metric

As mentioned above, a key measure of Berkshire's underlying businesses is operating income, which excludes the company's investment income. This is particularly important for Berkshire because it has significant investment holdings, including sizable stock holdings in major public companies. These investments can cause Berkshire's earnings to change dramatically from quarter to quarter, fueled by swings in the market. Excluding the investment portfolio's income is a helpful way for investors to see how the company's broad range of operating businesses have performed.

Berkshire Hathaway's operating income was severely affected by the pandemic last year. It showed the first signs of weakness when it grew only 5.7% in Q1 2020. Then operating income plunged 10.2% in Q2 and 30.7% in Q3 2020 as the pandemic inflicted broader damage on the U.S. and global economy. Since then, operating income has steadily accelerated over the following three quarters: from 13.2% YOY in Q4 FY 2020 to 19.5% and 21.3% YOY in Q1 and Q2 FY 2021, respectively. For Q3 2021, analysts expect further acceleration, with operating profit rising 28.1%, the fastest increase in at least 10 quarters.

Article Sources
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  1. New York Times. "Berkshire Hathaway Shakes Off the Ill Effects of the Pandemic."

  2. Berkshire Hathaway. "BERKSHIRE HATHAWAY INC.Information Regarding Third Quarter Earnings Release."

  3. Visible Alpha. "Visible Alpha."

  4. New York Times. "Berkshire Hathaway Lost $49.7 Billion in First Quarter Stung by Coronavirus."

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