• Berkshire Hathaway reported Q3 2020 results on Nov. 7, 2020.
  • It beat analysts' estimates for EPS and operating income.
  • However, operating revenue and operating income were down YOY.
  • Net gains on its investment portfolio were a plus for the bottom line.
  • Its stake in Kraft Heinz also added to reported earnings.
  • It cited COVID-19 as a continuing drag on operating results.
  • GEICO's Giveback program on premiums was another negative.

Berkshire Hathaway Inc. (BRK.A) reported Q3 2020 earnings on Nov. 7, 2020. Earnings per share (EPS) for its class A stock were $18,994, up by 87.7% from $10,119 in the same period during 2019. Total revenues from its operating divisions were $63.024 billion, down by 3.0% from $64.972 billion in Q3 2019. However, net gains from its investment portfolio and derivative contracts were $31.582 billion, surging by 189.1% from $10.926 billion year-over-year (YOY).

The EPS figure handily beat the consensus estimate of $9,757.59 by 94.7%, while Berkshire Hathaway's operating earnings of $6.058 billion were 8.2% better than the consensus estimate, which was $5.6 billion. However, operating earnings were down from $8.919 billion in the same period of 2019, thus representing a decline of 32.1%.

Negative Impact of COVID-19

Regarding the impact of the COVID-19 pandemic on its operations, Berkshire Hathaway had this to say, in part, in its quarterly report: "The government and private sector responses to contain its spread began to significantly affect our operating businesses in March. COVID-19 has since adversely affected nearly all of our operations, although the effects are varying significantly. The duration and extent of the effects over longer terms cannot be reasonably estimated at this time."

Insurance Results

Regarding its GEICO insurance subsidiary, the report noted: "GEICO’s underwriting results will likely be negatively affected over the remainder of the year and in the first quarter of 2021, as the remaining impact of the GEICO Giveback program (a program whereby all voluntary auto and motorcycle insurance policies renewed and newly issued during the period between April 8, 2020 and October 7, 2020 receive a 15% premium rate reduction) will be reflected in earned premiums during these periods." 

Underwriting revenues for GEICO were $8.54 billion in Q3 2020, down by 5.1% from $8.996 billion in Q3 2019. Earnings before income taxes for GEICO fell from $376 million in Q3 2019 to $276 million in Q3 2020, a decline of 26.6%.

Total revenues for all insurance operations, including investment income, were up by a modest 0.1% from $17.112 billion in Q3 2019 to $17.136 billion in Q3 2020. Meanwhile, total earnings before income taxes for the insurance group fell from $2.363 billion in Q3 2019 to $929 million in Q3 2020, a drop of 60.7%.

Equity Investment Portfolio

At the close of Q3 2020, which ended on Sept. 30, Berkshire Hathaway's equity investment portfolio had a fair value (or market value) of $245.317 billion, including $139.688 billion of unrealized capital gains. Roughly 70% of its total value was concentrated in just four stocks: $111.7 billion in electronic device maker Apple Inc. (AAPL), $24.9 billion in banking giant Bank of America Corp. (BAC), $19.7 billion in beverage maker The Coca-Cola Co. (KO), and $15.2 billion in financial services firm American Express Co. (AXP).

Kraft Heinz

Berkshire Hathaway's position in diversified foods processor Kraft Heinz Co. (KHC) stock is accounted for under the equity method, separate from its equity investment portfolio noted above. Berkshire holds 325.4 million common shares of Kraft Heinz, representing 26.6% of that company's outstanding shares.

Under the equity method, Berkshire takes an identical proportion of Kraft Heinz's net income onto its own income statement. The 26.6% share stake in Kraft Heinz added $159 million to Berkshire's reported net earnings for Q3 2020.