Berkshire Q1 2012 earnings to equal Apple's Q4 2011 of $13 Billion (+/- 1B)

[original mungerville]

Berkshire Q1 2012 earnings to equal Apple's Q4 2011 of $13 Billion (+/- 1B):

 

By my calculations, I have the following:

 

1. $8B pre-tax gain for the Big 4 common invt's plus BAC warrants

2. $2.6B pre-tax gain for other stock investments

3. 1.6 pre-tax gain on derivatives

 

Taking 1,2,3 applying a 20% effective capital gains tax rate (instead of 15% for conservatism) gives me 10B after tax. To  this I add $2-3 billion after-tax in other operating-type earnings totaling $13 Billion after tax for Q1 2012 which is equal to Apple's Q4 2012 according to: http://finance.yahoo.com/q/is?s=AAPL. A very big number.

 

When you multiply the new Q1 2012 book value per share by 1.1 (the buy-back indicator) you get $120K for Class A and $80 for Class B shares.

 

Word of caution: all of these gains (and consequently the buy-back level) and then some can reverse if the markets tank.

[gfp]

Equity mark to market doesn't pass through the earnings statement.  Only derivatives gain/loss and OTT impairment losses pass through the income statement on a mark to market basis.  You are referring to the change in book value.

[twacowfca]

Equity mark to market doesn't pass through the earnings statement.  Only derivatives gain/loss and OTT impairment losses pass through the income statement on a mark to market basis.  You are referring to the change in book value.

 

Yup.  BV/SH is the key number.  Also, my guestimate is that while tangible BV may have increased by about 10% to 11%, the increase in BV was less.  Did I miss something?

[original mungerville]

Yes, you are right: with the gains from equities not going through the income statement, my calculation of $13B would be the increase in book value and not the after tax earnings.

 

After-tax earnings should instead be in the $5 to $6 billion range. ($3B or so AT in derivatives gains including the BAC warrants plus $2-3B AT in operating earnings including interest and dividends)

 

[original mungerville]

To be clear, the conclusion still holds: When you multiply the new Q1 2012 book value per share by 1.1 (the buy-back indicator) you get $120K for Class A and $80 for Class B shares.

 

ie book value per Class B share will be $73 (73 X 1.1 = $80 as noted originally)

[redskin]

I was figuring the increase in book value (not earnings) would be somewhere between 10-12 billion.  The equity portfolio looks like it gained around $7 billion.  This doesn't include the Goldman, GE, and BAC warrants.  If it is $12 billion, I think the new book value would be approximately $107,000/share and the buyback price would be around 117,000/share

[original mungerville]

Redskin,

 

I think you are low because I did not even count the GE and Goldman warrant gains and am already at a book value of $109,000 per Class A (buy-back price of $120,000). 

 

GE is negligible but the Goldman warrant gains may add another 1 Billion or so to my calculations of both book value and earnings. So another 50 cents on the Bs per share, and just under another 1,000 on the As.

 

Again, taking this into account I am at book value of at least 73 on the Bs (a buy-back price of 80 on the Bs) and at least 109,000 on the As (a buy-back price of 120). AT earnings may be closer to 6 billion (+/- 0.5 Billion) instead of $5-6 billion; book value gain of closer to $14 billion (instead of $13 billion).

[redskin]

Redskin,

 

I think you are low because I did not even count the GE and Goldman warrant gains and am already at a book value of $109,000 per Class A (buy-back price of $120,000). 

 

GE is negligible but the Goldman warrant gains may add another 1 Billion or so to my calculations of both book value and earnings. So another 50 cents on the Bs per share, and just under another 1,000 on the As.

 

Again, taking this into account I am at book value of at least 73 on the Bs (a buy-back price of 80 on the Bs) and at least 109,000 on the As (a buy-back price of 120). AT earnings may be closer to 6 billion (+/- 0.5 Billion) instead of $5-6 billion; book value gain of closer to $14 billion (instead of $13 billion).

 

I very well may be low.  Definitely going to be a nice increase in BV for the quarter.  Hopefully we can get a break in the stock in order for him to get some shares back.

 

I'm not sure I am following your calculation if BV increases by $13 billion.  There are 1,650,000 Class A equivalent shares outstanding.  $13 billion would increase the BV by $7,878.  99,860+7,878= 107,738  This would put the buyback price at 118,500.  Either way, we are close to the buyback price now and BV will continue to increase over time.

 

[original mungerville]

Redskin,

 

You are right, I may have rounded. I still see book of 109K on the As and 73 on the Bs. Of course this could all prove fleeting if (when!) markets reverse. The way I look at it though (if markets only tank 10-15% this year) we will see 73 or so in book on the Bs starting with Q1 2012 and moving through Q4 operating earnings should make up for the investment losses from the market tanking 10-15% over the course of the year.

 

If the market tanks 30-40%, book value will go below 68, maybe low 60s putting the buy back price on the Bs at 66 or so and 100K on the As.

 

No use getting too precise with these trading-type short-term numbers. The better place to spend time is determining the long-term earning power of Berkshire.