Losses, Fewer Investment Gains Impact Berkshire's 3Q

With wide-moat-rated Berkshire Hathaway BRK.A BRK.B reporting third-quarter (year-to-date) results that were in line with our expectations, we are leaving our $480,000 ($320) per Class A (B) share fair value estimate in place. Third-quarter (year-to-date) revenue, which includes both realized and unrealized gains/losses from Berkshire's investments and derivatives portfolios, declined 20.2% (increased 32.8%) to $75.5 ($242.3) billion from $94.6 ($182.5) billion in the prior year's period(s), on a marked decrease (increase) in investment gains year over year. Excluding the impact of investment and derivative gains/losses and other adjustments, third-quarter (year-to-date) operating revenue increased 12.0% (12.8%) to $70.6 ($204.3) billion.

Operating earnings, exclusive of the impact of investment and derivative gains/losses, increased 18.0% (19.3%) year over year to $6.5 ($20.2) billion during the September quarter (first nine months) of 2021, even with the insurance operations posting a net underwriting loss for the third quarter (due to losses incurred from Hurricane Ida and flooding in Europe). When including the impact of the investment and derivative gains/losses, operating earnings decreased 65.7% (increased 650.1%) to $10.3 ($50.1) billion $30.1 ($6.7) billion in the prior year's period(s).

Book value per share (by our estimates) increased 1.7% sequentially to $316,443 (from $311,145 at the end of June), below our forecast of $322,354 (which did not include as much in catastrophe losses as Berkshire incurred during the September quarter). The company closed out the third quarter with $149.2 billion in cash and cash equivalents, up from $138.3 billion at the end of last year, despite buying back $20.2 billion worth of Berkshire's stock during the first nine months of the 2021. By our calculations, Berkshire came into the fourth quarter with around $113 billion in dry powder (excess cash) on hand that could be committed to investments, acquisitions, and share repurchases.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.