Berkshire Hathaway will announce its third-quarter results on November 2, with the market focusing on its earnings performance, stock buybacks, and Apple holdings. Analysts expect operating profit per share to decline by 1% to $7,335. The scale of buybacks may again be low, as Buffett is sensitive to prices. Berkshire's cash and cash equivalents have increased from $167 billion to $277 billion, potentially approaching $300 billion
According to the Zhitong Finance APP, Berkshire Hathaway (BRK.A.US), owned by Warren Buffett, will announce its third-quarter results on November 2 (Saturday). This highly anticipated report has Wall Street focusing not only on the company's earnings performance but also on stock buybacks, cash levels, and the scale of Berkshire's holdings in Apple (AAPL.US) during this period.
According to general analyst expectations, Berkshire's operating profit per Class A share is expected to decline by 1% to $7,335, approximately $10.5 billion, compared to $7,436 in the same period last year and a record $8,066 in the previous quarter.
Under accounting rules, the general expectations for the third quarter exclude any unrealized gains that may be included in the earnings from Berkshire's stock investment portfolio.
Stock Buybacks
CEO Warren Buffett has consistently told investors to focus on long-term returns rather than individual quarterly performance. Therefore, buybacks are expected to be closely monitored, as investors can gauge Buffett's views on his conglomerate from them.
Berkshire repurchased only $345 million in the second quarter, down from about $2.6 billion in the first quarter, marking the lowest quarterly buyback total in over four years.
Buffett has been controlling the pace of stock buybacks and is sensitive to prices. As stock prices have risen, Berkshire has reduced its buyback scale this year.
Berkshire's Class A shares have risen 26% this year, outperforming the total return of the S&P 500 index by about two percentage points.
Analysts expect the company's buybacks in the third quarter may again be low. One indication is that, based on the number of shares outstanding at the end of July, Berkshire did not repurchase any shares in the first three weeks of July.
Apple Holdings
Berkshire's cash and cash equivalents have surged from about $167 billion at the end of 2023 to $277 billion as of June 30, and could approach $300 billion, partly due to Berkshire selling over $10 billion in Bank of America (BAC.US) shares in the third quarter. One factor that may depress cash flow is the tax implications from the substantial gains on Apple stock sales this year. The total taxes from sales could exceed $15 billion.
However, a current question is whether Berkshire will further reduce its substantial holdings in Apple after cutting its stake by nearly 50% to 400 million shares in the second quarter. Buffett is likely to have stopped selling in this round.
Berkshire's holdings in Apple will be disclosed in a 10-Q filing, which will be released alongside the earnings report. Currently, Apple remains Berkshire's largest position, valued at about $93 billion, accounting for 30% of the company's equity investment portfolio, which exceeds $300 billion.
Negative Impact
Regarding the company's earnings, catastrophic losses in its large property and casualty insurance business (including the third-largest auto insurer in the U.S., Geico) may impact profits.
UBS analyst Brian Meredith estimates that catastrophic losses due to Hurricane "Helen" and other storms will be about $1 billion. The more destructive Hurricane "Milton" occurred in early fourth quarter, and Meredith expects Berkshire to incur about $2 billion in catastrophic losses in this quarter Another potential negative factor for Berkshire is foreign exchange losses. Berkshire has approximately $15 billion in foreign currency debt, most of which is in yen. When the dollar depreciates, as it did in the second quarter, the value of this debt increases, which depresses reported earnings.
It is estimated that Berkshire's after-tax non-cash foreign exchange losses could reach $1 billion. The yen-denominated debt issued by the company has provided significant funding for its equity investments in five Japanese trading companies, which are currently valued at over $20 billion.
Meredith's earnings per share forecast for Berkshire is $8,448, which is more optimistic than the general consensus.
It is estimated that the book value per Class A share of Berkshire could rise to about $440,000, a 5% increase from the second quarter. The higher book value will reflect the gains from its stock portfolio, led by Apple and American Express (AXP.US). Berkshire's current stock price is approximately 1.55 times its book value estimate for the third quarter