Berkshire Hathaway Q3 Results Miss Expectations

Berkshire Hathaway's third-quarter results fell short of analyst expectations, with EPS underperforming consensus projections.

The company’s EPS was reported at $4.68, below consensus estimates of $4.89. Analysts at TD Cowen noted, "BRK posted below-expected 3Q24 EPS as catastrophe losses and unfavorable prior year development in a BHPG subsidiary weighed on insurance earnings."

Operating income for "A" shares was reported at $7,023, below the UBS estimate of $8,652, while "B" shares came in at $4.68 against an expected $5.77.

This miss was largely driven by mixed results in the insurance sector. Although GEICO performed better than expected, disappointing figures from BHPG and the Reinsurance Group (NYSE:RGA) offset these gains.

BHPG experienced nearly $800 million in adverse reserve development for prior years, adding roughly 17 percentage points to its combined ratio, a metric of underwriting profitability.

Total catastrophe losses for the quarter amounted to $720 million, all attributed to Hurricane Helene, which was below UBS's forecast of $1 billion in losses. Breaking these losses down:
– GEICO: $260 million
– Reinsurance Group: $380 million
– BH Primary: $80 million

Despite these setbacks, GEICO improved its underlying loss ratio, achieving an 8.5 percentage point year-over-year reduction, outperforming UBS’s expected 1.7 point improvement.

Non-insurance segments also faced challenges. Berkshire’s railroad business, BNSF, reported income 4% below UBS’s estimate, impacted by lower revenue per car due to changes in fuel surcharges and business mix.

The energy unit, Berkshire Hathaway Energy, similarly missed operating income forecasts due to weaker revenue growth. TD Cowen flagged that BHPG’s premium revenue slightly increased to $5.1 billion, just below the $5.2 billion target.

The property and casualty combined ratio, a measure of underwriting profitability, worsened to 114.7% compared to last year’s 88.5% and was substantially higher than the 98.0% ratio anticipated by analysts. Catastrophe losses related to Hurricane Helene reached $565 million, exceeding expectations.

Despite setbacks in the insurance segment, Berkshire’s cash reserves grew to $325.2 billion as it continued reducing its holdings in Apple (NASDAQ:AAPL). However, these mixed results could position Berkshire's stock to underperform relative to industry peers in the near term, according to TD Cowen.

“We modestly lowered our share buyback assumption for 4Q24 ($1.1b vs. $2.6bb previously) considering where BRK's shares are trading relative to intrinsic value,” analysts at UBS noted.