Berkshire Hathaway Inc. 10-Q Summary: Q2 2021
Business Context and Reporting Period
This filing covers the quarterly period ended June 30, 2021. Berkshire Hathaway operates a diversified portfolio including insurance (GEICO, Reinsurance Group), railroad (BNSF), utilities and energy (Berkshire Hathaway Energy), and various manufacturing, service, and retailing businesses. The company reported strong operational recovery in 2021 compared to the pandemic-impacted 2020 period, though results remain volatile due to significant unrealized investment gains.
Key Financial Metrics
| Metric | Q2 2021 | Q2 2020 | YTD 2021 | YTD 2020 |
|---|---|---|---|---|
| Total Revenues | $69.1 billion | $56.8 billion | $133.7 billion | $118.1 billion |
| Net Earnings (Attributable to Shareholders) | $28.1 billion | $26.3 billion | $39.8 billion | $(23.5 billion) |
| Investment & Derivative Gains | $27.4 billion | $40.1 billion | $33.1 billion | $(30.2 billion) |
| Operating Earnings (Excl. Investments) | $8.6 billion | $6.5 billion | $16.8 billion | $13.4 billion |
| Cash & Equivalents (Insurance & Other) | $38.9 billion | $44.7 billion | $38.9 billion | $44.7 billion |
| Short-Term U.S. Treasury Bills | $101.8 billion | $90.3 billion | $101.8 billion | $90.3 billion |
| Total Shareholders' Equity | $478.8 billion | $397.3 billion | $478.8 billion | $397.3 billion |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 21.6% in Q2 2021 compared to Q2 2020, driven by higher freight volumes at BNSF, increased energy revenues, and recovery in manufacturing and retailing segments.
- Investment Volatility: While Q2 2021 saw a pre-tax investment gain of $27.4 billion, this was lower than the $40.1 billion gain in Q2 2020. The YTD 2021 gain of $33.1 billion contrasts sharply with the $30.2 billion loss in YTD 2020.
- Insurance Underwriting: Pre-tax underwriting earnings were $465 million in Q2 2021, down from $1.05 billion in Q2 2020. GEICO earnings declined due to higher claims frequencies and severities as driving resumed post-pandemic, offsetting the benefit of the "Giveback" program which reduced premiums in 2020.
- Operating Segments:
- BNSF: Pre-tax earnings rose 32.5% to $2.0 billion, driven by a 24.5% increase in freight volumes.
- Berkshire Hathaway Energy: Pre-tax earnings increased 38.6% to $739 million, aided by natural gas pipeline acquisitions and real estate brokerage growth.
- Manufacturing/Service/Retail: Pre-tax earnings surged 94% to $3.0 billion, reflecting strong demand and recovery from pandemic shutdowns.
Guidance, Outlook, and Risks
- Management Commentary: Management notes that investment gains/losses are often meaningless for evaluating economic performance due to market volatility. They emphasize maintaining ample liquidity, holding $140.7 billion in cash and U.S. Treasury Bills as of June 30, 2021.
- Share Repurchases: Berkshire repurchased $12.6 billion of its own stock in the first six months of 2021. The program continues indefinitely provided cash and Treasury holdings remain above $30 billion.
- Risks and Contingencies:
- Pandemic Effects: While operations have recovered, long-term effects on demand and supply chains remain uncertain. Winter Storm Uri caused estimated losses of $156 million (BH Primary) and $418 million (Reinsurance).
- Insurance Liabilities: Estimated unpaid losses and loss adjustment expenses total $123.2 billion. Small percentage changes in these estimates can materially impact earnings.
- Goodwill Impairment: No impairments were recorded in 2021. However, management notes that the fair value of Precision Castparts Corp. (PCC) exceeded its carrying value by only 10.6% in the last review, leaving limited margin for error.
Investor Verification Checklist
- Investment Portfolio Concentration: Verify the valuation of the top four equity holdings (Apple, Bank of America, American Express, Coca-Cola), which comprised approximately 69% of the equity portfolio's fair value.
- GEICO Loss Ratios: Monitor the trend in claims frequency and severity as driving habits normalize, which directly impacts underwriting profitability.
- Float Cost: Confirm that the cost of insurance float remains negative (i.e., underwriting profits exceed the cost of capital), which is a key driver of long-term value.
- Capital Allocation: Track the balance between share repurchases and potential large-scale acquisitions, noting the $30 billion liquidity floor.
- Energy Segment Debt: Review the debt levels and covenant compliance of Berkshire Hathaway Energy, which holds significant debt ($51.4 billion) not guaranteed by the parent company.