Wall Street will be focused on much more than Berkshire Hathaway’s earnings when the company reports third-quarter results on Saturday.
Stock repurchases in the period, cash levels, and the size of Berkshire’s Apple stake will get plenty of attention.
The FactSet consensus calls for a 1% decline in operating earnings to $7,335 per class A share, or about $10.5 billion, compared with last year’s third-quarter $7436. The company netted a record $8,066 in the second quarter.
The third-quarter consensus excludes likely paper gains on Berkshire’s equity portfolio that are included in earnings, based on accounting rules.
CEO Warren Buffett tells investors to focus on earnings over longer periods and not focus on a single quarter’s results.
The repurchases are closely watched since they offer a clue to Buffett’s view on the stock.
Berkshire bought back just $345 million in the second quarter, down from about $2.6 billion in the first quarter and the lowest quarterly total in more than four years.
Buffett controls the pace of stock buybacks and he is price conscious. Berkshire has scaled back its repurchases this year as the stock has climbed.
Class A shares, which were up 0.3% to $684,770 on Wednesday, have gained 26% this year, topping the S&P 500 total return by about two percentage points.
The buybacks could be low again in the third quarter. One indication is that Berkshire bought back no stock in the first three weeks of July, based on a Barron’s calculation using the company’s share count in late July.
Berkshire’s cash and equivalents, which surged to $277 billion on June 30 from about $167 billion at the end of 2023, could approach $300 billion, driven in part by Berkshire’s sales of more than $10 billion of Bank of America stock in the third quarter. One factor that could depress cash is taxes paid on the big gains on sales of Apple stock this year. That total tax bite could exceed $15 billion.
A big question mark is whether Berkshire further reduced its large stake in Apple after cutting it by nearly 50% in the second quarter to 400 million shares. Buffett may have stopped selling at that round number.
The Apple stake will be disclosed in the Berkshire 10-Q that should be released about the same time as the earnings release. Apple remains Berkshire’s largest equity holding at about $93 billion, or 30% of the company’s equity portfolio valued at over $300 billion.
Profits could be held down by catastrophe losses in the company’s big property- and casualty-insurance operations including Geico, the country’s No. 3 auto insurer.
UBS analyst Brian Meredith sees about $1 billion of catastrophe losses, reflecting Hurricane Helene and other storms. The more damaging hurricane, Milton, occurred early in the fourth quarter, and Meredith expects about $2 billion of catastrophe losses for Berkshire in the current quarter.
Another possible negative for Berkshire is foreign-currency losses. Berkshire has about $15 billion of debt denominated in foreign currencies, mostly the yen. When the dollar depreciates, as it did in the second quarter, the value of that debt increases and depresses reported earnings.
The noncash forex loss could be $1 billion after taxes, reversing similar gains in the first half of 2023, Barron’s estimates. The yen debt effectively financed a chunk of Berkshire’s equity investment in five Japanese trading companies now worth over $20 billion.
Meredith is more bullish than the consensus with an earnings estimate of $8,448 per share.
Berkshire’s book value could rise to about $440,000 per class A share, up 5% from the second quarter, Barron’s estimates. The higher book value would reflect gains in the equity portfolio, led by Apple and American Express. Berkshire trades for about 1.55 times out estimate of third-quarter book value.