3Q 2021 Earnings

[ValueMaven]

Thought I'd start a thread for 3Q 2021 earnings which comes out on 11/6 at 8am EST I believe 

 

Things I'm interesting in looking at: 

 

1) buyback pace/rate

2) BNSF profitability

3) insurance and reinsurance business ... GEICO and Reinsurance are two things I'd like to take a better look at 

4) MSR overall 

5) BHE overall 

 

 

Others??

[gfp]

I would expect GEICO to report a pretty bad quarter.  Ida and other industry trends will be tough but over time both Progressive and GEICO will adjust pricing.  It will be interesting to see what they show for Cat losses, with Ida being a very expensive storm.  It will be a good window into how much Cat reinsurance they are actually writing these days.  I'll bet not nearly as much as the size of Berkshire's overall insurance biz would have you assume.  But GEICO is going to put up an ugly quarter for sure.

[Parsad]

On 10/31/2021 at 12:02 PM, gfp said:

I would expect GEICO to report a pretty bad quarter.  Ida and other industry trends will be tough but over time both Progressive and GEICO will adjust pricing.  It will be interesting to see what they show for Cat losses, with Ida being a very expensive storm.  It will be a good window into how much Cat reinsurance they are actually writing these days.  I'll bet not nearly as much as the size of Berkshire's overall insurance biz would have you assume.  But GEICO is going to put up an ugly quarter for sure.

 

Like Fairfax, is BRK going to have a huge adjustment to book with the Nubank IPO at $50B?

 

https://finance.yahoo.com/news/buffett-backed-fintech-nubank-seek-140704906.html

 

Cheers!

[KPO]

30 minutes ago, Parsad said:

 

Like Fairfax, is BRK going to have a huge adjustment to book with the Nubank IPO at $50B?

 

https://finance.yahoo.com/news/buffett-backed-fintech-nubank-seek-140704906.html

 

Cheers!

Based on the purchase valuation and the IPO price it looks like a ~$350M gain, so great ROI, but probably not a material mark for Berkshire book value. I guess if anything this and things like Stone show that Ted & Todd have great potential for finding growth investments earlier in their growth trajectory than the AAPL’s & KO’s of the world. Will be interesting to see if they can do this at the scale a company as large as Berkshire requires. 

[gfp]

Right.  Berkshire will not have a "huge adjustment to book" from the Nubank IPO (or the PayTM IPO).  A single day's random fluctuation in AAPL or BAC stock is more material to Berkshire's book value than any of these private tech bets.  BYD worked out well for sure.  Either way, those IPOs weren't in Q3 - we are assuming they go off before the end of the year.

[scorpioncapital]

not if it tanks later..stoneco investment is lower than their purchase price after several years of holding.

[ValueMaven]

Weird - no one has posted here yet on this.  Very solid operating income - as expected insurance did post a sizable loss - but to be expected.  Buyback was larger then expected as well... $7.7B in the quarter - which is about $2B higher then I was expected ... WEB seems to like this $270 - $280 range right now.  BHE/BNSF/MSR are killing it.  I'm still reading the Q - but this is some initial thoughts.  Think about it - sharecount is down 10% in 2 years ... while cash is at record levels.

[KPO]

13 minutes ago, ValueMaven said:

Weird - no one has posted here yet on this.  Very solid operating income - as expected insurance did post a sizable loss - but to be expected.  Buyback was larger then expected as well... $7.7B in the quarter - which is about $2B higher then I was expected ... WEB seems to like this $270 - $280 range right now.  BHE/BNSF/MSR are killing it.  I'm still reading the Q - but this is some initial thoughts.  Think about it - sharecount is down 10% in 2 years ... while cash is at record levels.

And $1.8B more repurchases in October. 

[Gregmal]

I think we re past the point of needing to analyze Berkshire for purposes other than entertainment value. She s good. And she ll be good. The prospects from here out are exciting.

[ValueMaven]

If you compare reinsurance losses vs. some of the other major reinsurance companies, it was actually less than expected.  A little surprised by GEICO's loss in the quarter actually.  @Gregmaltotally - but as a BERK fanboy, I do enjoy this.  Cheers!

[Spekulatius]

Earnings were a bit ho-hum. As @gfp predicted, Geico‘s underwriting didn’t look great and neither did the rest of the insurance. Of course insurance underwriting always is lumpy. Actually, the biggest (but also immaterial ) surprise was that McLane had a small loss. I thought this business should have rebounded, but I guess they could not pass on the cost increases.

 

Thats purchase from Walmart many years ago did not work out well overall, I think.

Edited November 6, 2021 by Spekulatius

[Gregmal]

The business results don’t need to be good or bad. They’re solid enough businesses managed by smart enough operators that the market isn’t going to sway hugely one way or the other on a q to q basis. Buybacks and cash pile will drive this. It is not a coincidence that since the buybacks have ramped the shares have too. 

[ugadawg_98]

Buybacks continuing at very nice pace while cash build continues in spite of them.

 

If this isn’t balance sheet nirvana, I don’t know what is.

[modiva]

34 minutes ago, ugadawg_98 said:

build continues in spite of them.

 

If this isn’t balance sheet nirvana, I don’t know what is.

 

AAAAA, if there is such a rating. 

[redskin]

6 hours ago, Spekulatius said:

Earnings were a bit ho-hum. As @gfp predicted, Geico‘s underwriting didn’t look great and neither did the rest of the insurance. Of course insurance underwriting always is lumpy. Actually, the biggest (but also immaterial ) surprise was that McLane had a small loss. I thought this business should have rebounded, but I guess they could not pass on the cost increases.

 

Thats purchase from Walmart many years ago did not work out well overall, I think.

What was the price they paid for McClane?

[ValueMaven]

$1.45B - back in 2002/2003 ... prob worth a lot more in today's market IMHO

[Spekulatius]

13 minutes ago, ValueMaven said:

$1.45B - back in 2002/2003 ... prob worth a lot more in today's market IMHO

It worth more, but it still a crappy purchase. $255M in pretax earnings in 2020 and $288M in 2019. 0.5% profit margins. That doesn’t suggest a good investment 20 years later. It’s immaterial in the end relative to BRK’s size, but that’s one piece of deadwood that is probably better of with another owner.

[omagh]

Chris Bloomstran posted his 3Q 2021 notes
https://threadreaderapp.com/thread/1457045107765559296.html

Berkshire Hathaway released its 3Q financials this morning. A few quick observations. Cash at $149.2B and share repurchases of $7.6B during 3Q and $20.2B through 9/30 will draw media headlines, but inflation is the real story, as is the case with so many companies of late.

... ... ...

 

Despite $BRK shares outpacing major indices this year, the company will continue to draw criticism. Many expect a company with $472B in shareholder equity that earns a normalized ~10% on unleveraged equity capital to "beat the market" over all short and intermediate periods. 33/ 

With the S&P 500 trading at an earnings yield well below 5% and with margins at record highs, a bet against Berkshire's LONG-TERM continued outperformance is one I wouldn't take. Soundness looks silly at extremes of optimism. When capital suffers, Berkshire takes advantage.

[oscarazocar]

16 hours ago, Spekulatius said:

It worth more, but it still a crappy purchase. $255M in pretax earnings in 2020 and $288M in 2019. 0.5% profit margins. That doesn’t suggest a good investment 20 years later. It’s immaterial in the end relative to BRK’s size, but that’s one piece of deadwood that is probably better of with another owner.

If you value McLane at 10x pretax earnings, or $2.55 billion now, then the unlevered IRR for Berkshire on the purchase is over 15%.  McLane has earned a lot of money for a long time (over $400m EBT annually from 2012-2016, for instance), and it's since 2016 that earnings have come under pressure from competition.  EBT has been above $200 million every year since purchase, and total net income from 2003 through 2020 is over $3.8 billion.  I don't see how one can accurately define this as a "crappy purchase".

[ValueMaven]

7 hours ago, oscarazocar said:

If you value McLane at 10x pretax earnings, or $2.55 billion now, then the unlevered IRR for Berkshire on the purchase is over 15%.  McLane has earned a lot of money for a long time (over $400m EBT annually from 2012-2016, for instance), and it's since 2016 that earnings have come under pressure from competition.  EBT has been above $200 million every year since purchase, and total net income from 2003 through 2020 is over $3.8 billion.  I don't see how one can accurately define this as a "crappy purchase".

 

+1

[aws]

McLane's revenue this year exceeded Tesla's, and since in the aggregate TSLA is still in a loss position, so has its net income since 2003. But apparently one was a crappy purchase at $1.5b, and the other is great at 1.2t. Obviously not relevant comparisons, but I find them funny.

Edited November 8, 2021 by aws

[Spekulatius]

22 hours ago, oscarazocar said:

If you value McLane at 10x pretax earnings, or $2.55 billion now, then the unlevered IRR for Berkshire on the purchase is over 15%.  McLane has earned a lot of money for a long time (over $400m EBT annually from 2012-2016, for instance), and it's since 2016 that earnings have come under pressure from competition.  EBT has been above $200 million every year since purchase, and total net income from 2003 through 2020 is over $3.8 billion.  I don't see how one can accurately define this as a "crappy purchase".

Good point, but it depends on how much they reinvested in the business. We don't know how much cash they upstreamed to Berkshire so the true return isn't known.

 

The business definitely has been getting worse and is just breaking even basically.

Edited November 8, 2021 by Spekulatius

[gfp]

Here is an updated BRK Energy financial presentation from a Nov. 2021 conference for those interested -

https://www.brkenergy.com/assets/pdf/eei-presentations/2021-eei-presentation.pdf

 

The presentation shows they have firmed up new growth Capex projects and now show increasing capex for 2022 and 2023:

"

Berkshire Hathaway Energy and its subsidiaries will spend approximately $24.4 billion(1) from
2021 – 2023 for growth and operating capital expenditures, which primarily consist of new wind generation project expansions, repowering of existing wind facilities, and electric transmission and distribution capital expenditures"

 

Additionally, here are the links to the Burlington Northern 10Q and the BRK Energy 10Q.  BNSF distributed $1.4 Billion to Berkshire parent for the second consecutive quarter.  BRK Energy also gave Berkshire back $1.45 Billion in July when the second part of the pipeline deal didn't go through.  Berkshire had funded the Dominion deals by purchasing 4% perpetual preferred from BRK Energy, so BHE redeemed some of that when the money wasn't used for the pipeline purchase.

 

Railroad 10Q:

https://www.sec.gov/ix?doc=/Archives/edgar/data/0000934612/000093461221000021/bni-20210930.htm

 

Energy 10Q:

https://www.sec.gov/ix?doc=/Archives/edgar/data/0001081316/000108131621000037/bhe-20210930.htm

 

Edited November 8, 2021 by gfp

[ValueMaven]

thank you !!! @gfp

[ValueMaven]

FYI for what it is worth Tilson just came out with an updated valuation of $361 per share of the B's ... his valuation approach is fairly straight forward and one WEB has written about in the past.