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Berkshire Hathaway Declares
Q3 2021 Performance

Berkshire Hathaway is the largest investment position held by Hendershot Investments, a money-management firm. President and CEO, Ingrid Hendershot recaps Q3 2021 Earnings Report for Berkshire Hathaway.

Berkshire Hathaway (BRKB) reported the company’s net worth during the first nine months of 2021 increased 6.6%, or $29.3 billion, to $472.5 billion with book value equal to about $316,463 per Class A share as of 9/30/21. Berkshire earned $10.3 billion in the third quarter, including $6.5 billion of operating earnings and $3.9 billion of investment and derivate gains.

Berkshire’s four major equity investment holdings represent 70% of total equities, including American Express (NYSE: AXP) at $25.4 billion (which charged 39% higher during the first nine months or $7.1 billion), Apple (Nasdaq: AAPL) at $128.4 billion (which gained 7% in the first nine months or $8.0 billion), Bank of America (NYSE: BAC) at $43.9 billion (which deposited a 40% gain in value through 9/30/21 or $12.6 billion), and Coca-Cola (NYSE: KO) at $21.0 billion (fizzling 4% or down $900 million since year end).

Berkshire’s revenues increased 12% during the third quarter to $70.7 billion with operating earnings rising 18% to $6.5 billion as many of Berkshire’s businesses experienced a significant recovery in revenues and earnings following the pandemic. While some businesses have exceeded pre-pandemic levels in revenues and earnings, other business have been negatively impacted by ongoing global supply chain disruptions and Hurricane Ida.

During the third quarter, Berkshire’s insurance underwriting produced after-tax losses of $784 million which included incurred losses from significant catastrophe losses, including Hurricane Ida and floods in Europe, which approximated $1.7 billion. Underwriting results in 2021 also reflected the effects of the premium reductions from the GEICO Giveback program, higher private passenger automobile claims frequencies as people began to drive more following the pandemic and higher losses in the life reinsurance business due to the pandemic. Insurance investment income rose 14% during the third quarter to $1.2 billion, reflecting higher dividend income and a lower tax rate. Berkshire expects prevailing low interest rates to negatively affect earnings from fixed-income investments for the remainder of 2021. The float of the insurance operations approximated $145 billion as of 9/30/21, an increase of $7 billion since year end 2020. The average cost of float was negative during the first nine months of 2021 as the underwriting operations generated earnings of $356 million.

Burlington Northern Santa Fe’s (BNSF) revenues chugged 12% higher during the third quarter to $5.6 billion with net earnings rolling 14% higher to $1.5 billion reflecting overall higher freight volumes and lower costs due to improved productivity, partly offset by higher average fuel costs. Volume was up 4% during the quarter driven by a 14% gain in volume in industrial products, due to improvements in the construction and building sectors, and a 12% gain in volume in coal attributable to increased electricity generation, higher natural gas prices and improved export demand.

Berkshire Hathaway Energy reported revenues charged ahead 13% during the third quarter to $7.0 billion. Net earnings rose 7% during the quarter to $1.5 billion reflecting increased earnings from all the energy business units. However, the real estate brokerage business, included in this business segment due to an acquisition, reported earnings declined 42% during the quarter to $102 million due to a decrease in refinance activity.

Berkshire’s Manufacturing businesses reported third quarter revenues rose 15% to $17.5 billion with operating earnings up 8% to $2.4 billion. The Industrial Products segment led the way in this segment with revenues rising 17% and operating earnings gaining 20% from the prior year third quarter. Double-digit growth in revenues and earnings was generated by Marmon and IMC thanks to higher customer demand, improved manufacturing efficiencies and good operating cost management. The Building Products segment reported 12% growth in revenues but only a 1% increase in earnings due to persistent supply chain disruptions which limited sales and contributed to production delays and significant cost increases.

Consumer Products revenues jumped 18% with pre-tax earnings relatively flat as strong growth at Forest River driven by a 38% year-to-date increase in unit sales of recreational vehicles was offset by lower earnings from Duracell and the apparel and footwear businesses.

Service and Retailing revenues increased 10% during the third quarter to $21.3 billion with pre-tax earnings up 26% to $1.1 billion. Service group revenue increased 35% with pre-tax earnings up 48% thanks to strong growth from TTI, reflecting accelerating demand across all electronic component markets, and the aviation business services due to higher training hours at FlightSafety and significantly higher customer flight hours at NetJets.

Thanks to strong demand for home furnishings and new and pre-owned vehicle sales at Berkshire Hathaway Automotive, retailing operations reported an 8% increase in sales and a 34% jump in earnings during the third quarter. McLane’s revenues increased 5% during the quarter with the company reporting a slight loss due to higher personnel costs and fuel expenses. McLane’s operations have been adversely impacted by supply chain disruptions, including shortages of truck drivers, which is affecting inventory and customer deliveries.

Berkshire’s balance sheet continues to reflect very significant liquidity and a very strong capital base of $472 billion as of 9/30/21. Excluding railroad, energy and utility investments, Berkshire ended the third quarter with $489.9 billion in investments allocated approximately 63.4% to equities ($310.8 billion), 3.7% to fixed-income investments ($18.1 billion), 3.4% to equity method investments ($16.7 billion), and 29.5% in cash and equivalents ($144.4 billion).

Free cash flow rose 14% during the first nine months of 2021 to $22.4 billion. During the first nine months, capital expenditures approximated $9.2 billion. Berkshire expects capital expenditures for the remainder of 2021 to approximate an additional $3.1 billion for BNSF and Berkshire Hathaway Energy. During the first nine months, Berkshire sold or redeemed a net $12.8 billion in Treasury Bills and fixed-income investments and sold a net $7.0 billion of equity securities.

Berkshire repurchases its shares at prices below Berkshire’s intrinsic value, as conservatively determined by Warren Buffett and Charlie Munger. During the first nine months, Berkshire repurchased $20.2 billion of its common stock including $7.6 billion in the third quarter.

These repurchases included 9,580,995 Class B shares acquired at an average price of $277.74 per share and 1,323 Class A shares purchased at an average price of $419,237 per share during September 2021. After quarter end, it appears Berkshire has acquired about $1.8 billion in additional shares of its common stock based on its lower share count as of 10/27/21 reported on the 10-Q.

Editor’s Note: Ingrid Hendershot is President and CEO of Hendershot Investments, Inc. The money-management firm offers personalized investment advisory services to individuals, pension and profit sharing plans, trusts, estates, charitable organizations and corporations or other business entities. For more information on the services offered by Hendershot Investments visit www.hendershotinvestments.com.

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