What to Look For From BRK.A

Key Takeaways

  • Analysts estimate EPS of $18,444.99 vs. $22,013.00 in Q4 FY 2020.
  • Operating income is expected to rise at a robust pace YOY.
  • Revenue is expected to decline for the third straight quarter.

Berkshire Hathaway Inc. (BRK.A), one of the nation’s largest companies, has posted strong operating income growth in its core businesses in recent quarters as it recovers from the economic shock of the COVID-19 pandemic. The company said in late January that it increased its workforce by 12,000 since the end of 2020, a further reflection of the ongoing recovery in the company’s different businesses.

Investors will be looking closely at whether Berkshire can continue to rebound when it reports earnings on Feb. 26, 2022 for Q4 FY 2021. Analysts expect earnings per share (EPS) to decline for the second straight quarter as revenue declines for the third straight quarter. Those declines seem inconsistent with the recovery occurring in Berkshire’s core businesses, but they aren’t really. That’s because Berkshire has a unique, often misunderstood, way of reporting its revenue and EPS numbers.

Berkshire’s revenue and EPS figures include the performance of the company’s massive investment portfolio of stocks, derivatives, and other securities. Investors examining Berkshire’s official filings with the Securities and Exchange Commission (SEC) will see that below the company’s line for total revenues there is a line for investment and derivative contracts. The investments are included in the company’s overall revenue and EPS figures used in this story. Because of the size of Berkshire’s investment portfolio, those top and bottom line figures will be heavily impacted by fluctuations in the stock market.

In order to obtain a clearer picture of the performance of Berkshire’s underlying core businesses, investors should look at the company’s operating income, which excludes the gains and losses from its investment portfolio. By excluding the volatile fluctuations of the company’s investment portfolio, the metric provides a clearer picture of the income generated solely by the company’s operating businesses, which are insurance, railway, energy, retail and other businesses. Analysts expect Berkshire’s operating income to rise at its fastest pace out of any quarter in the past three years.

Shares of Berkshire Hathaway have outperformed the broader market over the past year. The stock tracked the performance of the rest of the market fairly closely for much of the past year, except for a few brief periods where it outperformed, including recently. Since the start of 2022, the stock has been volatile but its outperformance gap has widened significantly as the rest of the market has dropped. Berkshire’s shares have provided a total return of 23.2% over the past year, above the S&P 500’s total return of 9.3%.

Source: TradingView.

Berkshire Hathaway Earnings History

Berkshire reported Q3 FY 2021 earnings results that beat analysts’ expectations. EPS fell 63.8% compared to the year-ago quarter, marking the first decline since the company reported a loss per share in Q1 FY 2020. Revenue was down 20.3% year over year (YOY), the second straight quarter of declining revenue. The declines in the company’s revenue and EPS were largely driven by significantly lower gains made from the company’s investment portfolio compared to the year-ago quarter.

In Q2 FY 2021, Berkshire reported earnings and revenue that surpassed consensus estimates. EPS rose 13.3% YOY, slowing dramatically from the previous quarter. Revenue fell 0.5% compared to the year-ago quarter, marking the first decline since the company reported negative revenue in Q1 FY 2020. The company indicated that earnings from its business operations recovered significantly from the year-ago quarter, which was badly impacted by the shock from the COVID-19 pandemic. However, its businesses are now facing the challenges of ongoing supply chain disruptions and higher input costs.

Analysts expect the earnings and revenue declines to continue in Q4 FY 2021. EPS is expected to fall 16.2% YOY, which would be the second straight quarter of declines. Revenue is forecast to fall 18.1% compared to the year-ago quarter, the third straight decline. For full-year FY 2021, analysts expect EPS to rise 92.5% as revenue expands 19.2%. It would be a significant improvement from the declines in both EPS and revenue experienced in FY 2020.

Berkshire Hathaway Key Stats
  Estimate for Q4 FY 2021 Q4 FY 2020 Q4 FY 2019
Earnings Per Share ($) 18,444.99 22,013.00 17,892.00
Revenue ($B) 84.8 103.5 96.1
Operating Income ($B) 6.3 5.0 4.4

Source: Visible Alpha

The Key Metric

As mentioned above, a key measure of the performance of Berkshire’s underlying businesses is operating income, which excludes the company’s investment income. The company, however, defines operating income in its own particular way: typically, operating income is a before-tax income measure but Berkshire’s metric is an after-tax income measure—it’s basically net income excluding the gains and losses of the investments that comprise its large equity portfolio. Keeping an eye on Berkshire’s operating-income metric is particularly important because the company 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.

In the two years prior to the onset of the pandemic, Berkshire’s operating income expanded, albeit barely in FY 2019. The company’s operating income rose 64.4% in FY 2018 before slowing to a pace of 0.8% the following year. But in FY 2020, the first year impacted by the economic shock from the pandemic, the company’s operating income fell 8.6%. The annual decline is attributable to declines in the second and third quarters of the year, with operating income falling 10.2% YOY in Q2 and by 30.5% YOY in Q3. Growth returned in Q4 FY 2020, as operating income increased 13.2% compared to the year-ago quarter. It continued to expand in the first three quarters of FY 2021, rising 19.5% YOY in Q1, 21.3% YOY in Q2, and 18.6% YOY in Q3. Analysts expect Berkshire’s operating income to continue growing in Q4 FY 2021, rising 25.4% YOY. It would be the fastest pace of growth out of any quarter in the past three years. For full-year FY 2021, analysts expect operating income to rise 20.4%, which would be the fastest pace since FY 2018.


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