Berkshire Hathaway Q3 results to provide views on cash and stock holdings

Berkshire Hathaway (NYSE:BRK.B) (NYSE:BRK.A), the sprawling investment company built by investing legend Warren Buffett, reports its Q3 earnings on Saturday. Its results will say almost as much about the U.S. economy as it does about the Omaha, Nebraska-based company itself.

The Berkshire empire consists of a powerful insurance arm, BNSF rail, energy and utilities, Pilot truck stops, industrial operations including Precision Castparts and Lubrizol, consumer products such as Fruit of the Loom and Duracell, car dealerships, real estate brokerages, and retailers, including See’s Candies and Dairy Queen.

While the company was originally a textile manufacturer, Buffett steered it into insurance, starting in 1967, building it into an investing juggernaut. The insurance arm, which now includes GEICO, National Indemnity, and General Reinsurance, among others, provides the cash that allows Berkshire (NYSE:BRK.B) to buy a wide variety of businesses and to amass a giant portfolio of equities.

The company is expected to post Q3 revenue of $83.2B, according to the CapIQ consensus, down from $93.7B in Q2 and $93.2B in Q3 2023.

While Berkshire’s (NYSE:BRK.B) GEICO and other insurance businesses will be affected by the busy 2024 hurricane season, the worst of the storms — Helene and Milton — occurred in October. So they won’t impact Q3 earnings.

Investors will be keen to see the amount of cash on the company’s balance sheet. At June 30, 2024, it had $276.9B. Lucas Ma of Envision Research, Investing Group Leader for Envision Early Retirement, estimates that Berkshire’s stash could be close to $300B.

Because Berkshire (NYSE:BRK.A) (NYSE:BRK.B) doesn’t distribute a dividend, the only way it returns capital to shareholders is through stock buybacks. The amount of stock that the company buys back lets investors know whether Buffett considers the stock to be undervalued. In Q2, the company repurchased $345M of its shares, a small amount, compared with $2.6B in Q1 and $9.2B for all of 2023.

Another valuable asset on its balance sheet is the investments it makes in other companies’ stocks. Berkshire Hathaway (BRK.B) has been trimming its equities portfolio, with notable examples being Apple (AAPL) and Bank of America (BAC). Fair value of its investments in equity securities dropped to $284.9B at June 30, 2024, from $353.8B at Dec. 30, 2023.

The fair value of its investment in Apple (AAPL) fell to $84.2B at the end of Q2 from $174.3B at the end of Q1; Berkshire’s Q3 filing will update investors on the value of its Bank of America (BAC) holdings, which stood at $41.1B at June 30, 2024.

In October, its stake in BofA fell below 10%, meaning it no longer needs to file any changes in its holdings within a couple of days. As of Oct. 10, Berkshire held 775M shares of Bank of America (BAC), valued at ~$31B at the close of trading that day. That’s down from the $41.1B value of its stake at June 30.

Meanwhile, the company is building up its stake in Sirius XM (SIRI), holding 112.5M shares as of Oct. 31 (which, of course, won’t show up in the Q3 filings), putting its value at ~$3.00B.

Envision Research’s Ma sees two potential reasons for the shrinking equities portfolio and rising cash holdings — “a lack of attractive capital deployment opportunities going forward” or it’s preparing for a giant acquisition. “Given such uncertainties, I consider the stock a HOLD under current conditions,” he said.

Ahead of the earnings announcement, Berkshire’s B shares rose 0.7% and A shares gained 0.8% in Friday midday trading.