Berkshire Hathaway Inc. 10-Q Summary: Q3 2021
Business Context and Reporting Period
This filing covers the quarterly period ended September 30, 2021. Berkshire Hathaway Inc. operates a diversified portfolio of businesses including insurance (GEICO, Reinsurance Group), railroad (BNSF), utilities and energy (Berkshire Hathaway Energy), and various manufacturing, service, and retailing operations. The company reported strong liquidity with consolidated cash, cash equivalents, and U.S. Treasury Bills totaling approximately $144.4 billion in its insurance and other businesses.
Key Financial Metrics
| Metric | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 |
|---|---|---|---|---|
| Total Revenues | $70.6 billion | $63.0 billion | $204.3 billion | $181.1 billion |
| Net Earnings (Attributable to Shareholders) | $10.3 billion | $30.1 billion | $50.1 billion | $6.7 billion |
| Investment & Derivative Gains | $4.9 billion | $31.6 billion | $38.0 billion | $1.4 billion |
| Operating Cash Flows (9 Months) | $31.6 billion | $29.2 billion | N/A | N/A |
| Shareholders' Equity | $472.5 billion | N/A | N/A | N/A |
| Debt (Parent & Subsidiaries) | $114.9 billion | N/A | N/A | N/A |
Note: Net earnings for Q3 2020 were significantly inflated by investment gains. Operating earnings (excluding investment gains/losses) showed growth in most segments.
Material Changes vs. Prior Period
- Investment Volatility: Net earnings dropped significantly in Q3 2021 compared to Q3 2020 ($10.3B vs $30.1B) primarily due to a decrease in unrealized investment gains ($4.9B vs $31.6B). However, year-to-date earnings were robust ($50.1B) compared to the prior year ($6.7B), which was depressed by a $10 billion goodwill impairment charge in Q2 2020.
- Insurance Underwriting: The insurance segment reported a pre-tax underwriting loss of $1.0 billion in Q3 2021, compared to a loss of $291 million in Q3 2020. This was driven by catastrophe losses (Hurricane Ida, European floods) and higher claims frequencies, partially offset by favorable prior-year reserve releases.
- Operating Segments:
- BNSF: Pre-tax earnings increased 14.2% in Q3 and 16.7% year-to-date, driven by higher freight volumes and productivity improvements.
- Utilities & Energy: Earnings increased 7.2% in Q3 and 13.5% year-to-date, aided by the acquisition of Dominion Energy assets and higher natural gas margins.
- Manufacturing/Service/Retail: Earnings increased 15.3% in Q3 and 42.8% year-to-date, reflecting recovery from pandemic lows, though supply chain disruptions increased input costs.
- Share Repurchases: The company repurchased $20.2 billion of its own stock in the first nine months of 2021, including $7.6 billion in Q3 alone.
Guidance, Outlook, and Risks
- Management Commentary: Management emphasizes that investment gains/losses are often meaningless for evaluating economic performance due to market volatility. They prioritize maintaining ample liquidity (cash and Treasuries) over yield. The company continues to repurchase shares when the price is below intrinsic value, provided cash holdings remain above $30 billion.
- Risks and Contingencies:
- Catastrophe Losses: Significant volatility in insurance results due to natural disasters (e.g., Hurricane Ida).
- Supply Chain Disruptions: Ongoing global supply chain issues are increasing input costs and causing production delays in manufacturing and retail sectors.
- Goodwill Impairment: While no impairment was recorded in 2021, management notes that the long-term effects of the pandemic on reporting units (specifically Precision Castparts Corp.) could lead to future impairment charges if fair values decline.
- Derivative Contracts: The company holds equity index put option contracts written prior to 2008. The liability was $286 million at period end, with intrinsic value of $83 million.
Key Facts for Investor Verification
- Investment Portfolio Concentration: Approximately 70% of the equity portfolio's fair value ($310.7 billion) is concentrated in four companies: Apple ($128.4B), Bank of America ($43.9B), American Express ($25.4B), and Coca-Cola ($21.0B).
- Float Cost: The combined insurance operations generated pre-tax underwriting earnings in the first nine months, resulting in a negative cost of float.
- Debt Maturities: Parent company debt maturing in the next 12 months is $600 million. BNSF and BHE aggregate debt maturities over the next 12 months approximate $2.4 billion.
- Equity Method Investments: The carrying value of the investment in Kraft Heinz ($13.3 billion) exceeded its fair value ($12.0 billion) by approximately 10% at period end, though no impairment was deemed necessary.
- Share Count: As of October 27, 2021, there were 619,938 Class A shares and 1,303,476,707 Class B shares outstanding.