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Why Is Berkshire Hathaway B (BRK.B) Down 4.9% Since Last Earnings Report?

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A month has gone by since the last earnings report for Berkshire Hathaway B (BRK.B - Free Report) . Shares have lost about 4.9% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Berkshire Hathaway B due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Berkshire Hathaway Q2 Earnings & Revenues Rise Y/Y

Berkshire Hathaway delivered second-quarter 2022 operating earnings of $9.3 billion, which increased 38.8% year over year. The increase was driven by higher earnings at Railroad, Utilities and Energy, as well as Manufacturing, Service and Retailing businesses.

Behind the Headlines

Revenues increased 10.2% year over year to $76.2 billion, attributable to higher insurance premiums earned, sales and service revenues, leasing revenues, interest, dividend and other investment income in Insurance and Other as well as higher freight rail transportation revenues and energy operating revenues in Railroad, Utilities and Energy. The figure was higher than our estimate of $72.9 billion.

Costs and expenses increased 5.3% year over year to $54.5 billion, largely due to an increase in insurance losses and loss adjustment expenses, cost of sales and services, cost of leasing and interest expense. The figure was lower than our estimate of $64.8 billion.

Segment Performance

Berkshire Hathaway’s Insurance and Other segment revenues increased 10.1% year over year to $63 billion in the reported quarter on the back of higher insurance premiums earned, sales and service revenues, leasing revenues, interest, dividend and other investment income. The figure was higher than our estimate of $60.5 billion.

Insurance underwriting after-tax earnings increased 54.5% year over year. Underwriting earnings from reinsurance activities increased, reflecting foreign currency exchange rate gains arising from the re-measurement of non-U.S. dollar-denominated liabilities on insurance contracts of U.S. insurance subsidiaries.

Underwriting earnings from GEICO declined due to increases in claims frequencies and severities and lower reductions of ultimate claim estimates for prior years’ losses.

Railroad, Utilities and Energy operating revenues increased 10.6% year over year to $13.1 billion. The figure was higher than our estimate of $12.4 billion. Pre-tax earnings of Railroad increased 8.7% year over year to $2.1 billion. Pre-tax earnings of Utilities and Energy decreased 23.7% year over year to $564 million.

After-tax earnings of railroad business increased 9.8% year over year. The upside reflected higher revenue per car per unit. It was partly offset by lower overall freight volumes and higher fuel costs.

After-tax earnings of utilities and energy business increased 3.5% year over year on higher earnings from tax equity investments and from the natural gas pipeline and Northern Powergrid businesses. It was partly offset by lower earnings from the U.S. regulated utilities and real estate brokerage businesses.

Total revenues at Manufacturing, Service and Retailing increased 10.2% year over year to $42.6 billion. Pre-tax earnings increased 8% year over year to $4.3 billion. After-tax earnings increased 8.2% in the second quarter of 2022. Solid customer demand for products and services in the first six months of 2022 was weighed down by higher materials, freight, labor and other input costs.

Financial Position

As of Jun 30, 2022, consolidated shareholders’ equity was $469.6 billion, down 8.8% from the level as of Dec 31, 2021. At quarter-end, cash and cash equivalents were $30.6 billion, down 65.3% from the level at 2021 end.

Berkshire exited the second quarter of 2022 with a float of about $147 billion, unchanged from the figure at year-end 2021. Cash flow from operating activities totaled $15.4 billion in the reported quarter, down 21.5% from the year-ago period. Berkshire Hathaway bought back shares worth $4.2 billion in the first half of 2022.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

Currently, Berkshire Hathaway B has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Berkshire Hathaway B has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.

Performance of an Industry Player

Berkshire Hathaway B belongs to the Zacks Insurance - Property and Casualty industry. Another stock from the same industry, Selective Insurance (SIGI - Free Report) , has gained 2% over the past month. More than a month has passed since the company reported results for the quarter ended June 2022.

Selective Insurance reported revenues of $907.6 million in the last reported quarter, representing a year-over-year change of +9.3%. EPS of $1.17 for the same period compares with $1.85 a year ago.

For the current quarter, Selective Insurance is expected to post earnings of $1.26 per share, indicating a change of +6.8% from the year-ago quarter. The Zacks Consensus Estimate has changed -6% over the last 30 days.

Selective Insurance has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.


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