Berkshire Hathaway Inc. 10-Q Summary: Q3 2022
Business Context and Reporting Period
This summary covers the quarterly period ended September 30, 2022, for Berkshire Hathaway Inc. The company operates a diverse portfolio of businesses including insurance (GEICO, Reinsurance Group), railroad (BNSF), utilities and energy (BHE), and various manufacturing, service, and retailing operations. The reporting period was significantly impacted by macroeconomic factors, including supply chain disruptions, inflation, geopolitical conflicts, and a sharp decline in equity market valuations.
Key Financial Metrics
| Metric | Q3 2022 | Q3 2021 | YTD 9M 2022 | YTD 9M 2021 |
|---|---|---|---|---|
| Total Revenues | $76.9 billion | $70.6 billion | $223.9 billion | $204.3 billion |
| Net Earnings (Loss) Attributable to Shareholders | $(2.7) billion | $10.3 billion | $(41.0) billion | $50.1 billion |
| Investment & Derivative Gains (Losses) | $(13.5) billion | $4.9 billion | $(82.4) billion | $38.0 billion |
| Operating Cash Flows (YTD) | $27.0 billion (2022) vs $31.6 billion (2021) | |||
| Cash & Equivalents (Total) | $33.4 billion (End of Q3 2022) | |||
| Shareholders' Equity | $455.4 billion (End of Q3 2022) |
Material Changes vs. Prior Period
- Net Loss Driven by Investments: The reported net loss of $41.0 billion for the first nine months was primarily driven by an unrealized investment loss of $82.4 billion on equity securities, largely due to market declines. Operating businesses remained profitable.
- Insurance Underwriting: Pre-tax underwriting losses were $358 million for the first nine months of 2022, compared to a profit of $411 million in 2021. This deterioration was caused by significant catastrophe losses (notably Hurricane Ian) and increased claims frequency and severity in the auto sector.
- Operating Segment Performance:
- BNSF: Pre-tax earnings decreased 7.1% in Q3 due to lower freight volumes and higher fuel costs, despite higher revenue per car.
- Utilities & Energy: Earnings increased 5.9% in Q3, driven by higher earnings from tax equity investments and natural gas pipelines.
- Manufacturing/Service/Retail: Earnings increased 20.0% in Q3, though demand began to weaken in the third quarter for certain businesses.
- Liquidity: Cash and cash equivalents decreased significantly from $85.3 billion at year-end 2021 to $28.9 billion at Q3 2022 (excluding Treasury Bills), as the company deployed capital into investments and acquisitions.
Guidance, Outlook, and Risks
- Management Commentary: Management reiterates that investment gains and losses are "meaningless" for evaluating periodic economic performance due to their volatility. They emphasize that operating earnings provide a better view of business health.
- Acquisitions: Berkshire completed the acquisition of Alleghany Corporation on October 19, 2022, for approximately $11.6 billion in cash. The company also plans to acquire an additional 41.4% interest in Pilot Travel Centers in Q1 2023.
- Share Repurchases: The company repurchased $5.2 billion of its own stock in the first nine months of 2022. Repurchases will continue as long as the price is below intrinsic value and consolidated cash/Treasury holdings remain above $30 billion.
- Risks and Contingencies:
- Accounting Changes: Adoption of ASU 2018-12 in 2023 is expected to reduce shareholders' equity by approximately $4.7 billion (as of Dec 31, 2021 estimates) due to changes in discount rate assumptions for long-duration contracts.
- Geopolitical & Economic: Ongoing risks include supply chain disruptions, inflation, and the impact of the Russia-Ukraine conflict on costs and operations.
- Insurance Liabilities: Estimated liabilities for unpaid losses and loss adjustment expenses are $128.3 billion; actual ultimate claim amounts may differ materially.
Key Facts for Investor Verification
- Investment Portfolio Valuation: Verify the fair value of the $306.2 billion equity portfolio, noting that ~73% is concentrated in five companies (Apple, Bank of America, Chevron, Coca-Cola, American Express).
- Catastrophe Loss Reserves: Confirm the adequacy of reserves for Hurricane Ian ($3.4 billion pre-tax loss recorded) and other 2022 events.
- Float Cost: Note that the average cost of float for the first nine months was 0.24%, indicating the insurance business generated underwriting losses but at a low cost of capital.
- Debt Maturities: Review the $116.5 billion in consolidated borrowings, noting that over 95% is held by the parent, BHFC, BNSF, and BHE, with significant maturities in 2023.
- Equity Method Investments: Monitor the transition of Occidental Petroleum to equity method accounting (effective August 2022), which will impact future earnings reporting.