BERKSHIRE HATHAWAY INC quarterly report, Q2 FY2023

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Berkshire Hathaway Inc. 10-Q Summary: Q2 2023

Business Context and Reporting Period

This filing covers the quarterly period ended June 30, 2023. Berkshire Hathaway Inc. operates a diversified portfolio including insurance, railroad, utilities, energy, manufacturing, service, and retailing businesses. A significant event during the period was the acquisition of an additional 41.4% interest in Pilot Travel Centers on January 31, 2023, bringing total ownership to 80% and resulting in full consolidation of Pilot's financials starting February 1, 2023.

Key Financial Metrics

Metric Q2 2023 Q2 2022 YTD 2023 YTD 2022
Total Revenues $92.5 billion $76.2 billion $177.9 billion $147.0 billion
Net Earnings (Attributable to Shareholders) $35.9 billion ($43.6 billion) $71.4 billion ($38.0 billion)
Investment Gains (Losses) $33.1 billion ($66.9 billion) $67.8 billion ($68.9 billion)
Operating Cash Flow (YTD) $21.1 billion $15.4 billion $21.1 billion $15.4 billion
Cash & Equivalents (Total) $50.7 billion $31.2 billion $50.7 billion $31.2 billion
Total Debt $125.3 billion $122.7 billion $125.3 billion $122.7 billion

Note: Figures in parentheses indicate losses. Investment gains are primarily unrealized changes in the fair value of equity securities.

Material Changes vs. Prior Period

  • Profitability Surge: Net earnings swung from a loss of $43.6 billion in Q2 2022 to a profit of $35.9 billion in Q2 2023. This reversal is predominantly driven by a $100 billion swing in investment gains/losses on equity securities (from a $66.9 billion loss to a $33.1 billion gain).
  • Insurance Underwriting: Pre-tax underwriting earnings improved significantly to $1.6 billion in Q2 2023 from $896 million in Q2 2022. GEICO returned to profitability with $514 million in earnings, aided by reduced advertising costs and favorable prior-year claim adjustments.
  • Operating Segments:
    • BNSF: Earnings declined 24% year-over-year due to lower freight volumes (down 11.1%) and higher non-fuel operating costs, partially offset by lower fuel costs.
    • Berkshire Hathaway Energy (BHE): Earnings were flat in Q2 but declined 23% YTD, impacted by higher wildfire loss accruals and lower earnings from real estate brokerage.
    • Pilot Travel Centers: Contributed $186 million in pre-tax earnings for Q2 2023 (consolidated for 5 months YTD), though revenues were lower than 2022 due to reduced fuel prices.
  • Liquidity: Cash and cash equivalents increased to $50.7 billion, up from $31.2 billion in the prior year period, reflecting strong operating cash flows and reduced capital expenditures relative to prior years.

Guidance, Outlook, and Risks

  • Management Commentary: Management reiterates that investment gains and losses are volatile and often meaningless for evaluating the economic performance of operating businesses. The focus remains on operating earnings and maintaining ample liquidity.
  • Share Repurchases: Berkshire repurchased $5.8 billion of its own stock in the first six months of 2023. The program continues indefinitely, provided cash holdings remain above $30 billion.
  • Wildfire Contingency: PacifiCorp (a BHE subsidiary) has accrued $1.018 billion in pre-tax probable losses related to the 2020 wildfires. Management notes it is reasonably possible that significant additional losses will be incurred, though a range cannot be estimated.
  • Goodwill Impairment: Management concluded that goodwill was not impaired as of June 30, 2023. However, they warn that adverse economic conditions or geopolitical conflicts could lead to future impairment charges.
  • Regulatory Risks: The company is evaluating the impact of the Inflation Reduction Act of 2022, including the 15% corporate alternative minimum tax and the 1% excise tax on stock repurchases, though no material impact is currently expected.

Investor Verification Checklist

  • Investment Portfolio Volatility: Verify the composition of the $353.4 billion equity portfolio, noting that ~78% is concentrated in five companies (Apple, Bank of America, Coca-Cola, Chevron, American Express).
  • Insurance Float: Confirm the stability of the $166 billion insurance float and the adequacy of loss reserves, particularly regarding prior-year claim adjustments.
  • Pilot Integration: Monitor the integration of Pilot Travel Centers and the impact of fuel price volatility on its margins.
  • Wildfire Exposure: Track updates on the 2020 wildfire litigation and potential increases in the $1 billion accrual.
  • Debt Maturities: Review the $125.3 billion debt load, noting that over 95% is held by the parent company and major subsidiaries (BNSF, BHE, Pilot), with aggregate maturities for BHE and BNSF over the next 12 months approximating $4.5 billion.