Berkshire Hathaway Earnings Preview: Revenue Likely to Maintain Stable Growth

In the last quarter (FY2024Q3), Berkshire Hathaway's revenue declined by 0.23% YoY to $92.995 billion, while net income reached $26.3 billion. This marked a significant turnaround from the $12.8 billion loss recorded in Q3 2023. Insurance underwriting profit hit $1 billion, and investment income surged by 56.6% to $4.6 billion.

For Q3 2024, BNSF Railway's earnings increased by 13.3% to $1.4 billion, driven by higher volumes and improved efficiency. Berkshire Hathaway Energy's profits soared to $1.6 billion, while earnings from manufacturing, service, and retail operations declined by 5.9% to $3.1 billion. By the end of Q3, Berkshire's cash reserves had surged to a record $325.2 billion, reflecting its conservative strategy.

Insurance is a key revenue driver for Berkshire Hathaway, accounting for 29% of total revenue. The company's insurance and reinsurance activities are conducted through numerous domestic and international subsidiaries. Between 2021 and 2023, insurance underwriting income grew at an annual rate of 21%. In Q3 2023, Berkshire's insurance business reported operating revenue of $22.055 billion, driven primarily by increased underwriting profits, especially from cost-cutting measures at auto insurer GEICO and the acquisition of underwriting firm Alleghany Corp.

The growth in insurance profits has been linked to rising interest rates, reduced catastrophic loss events, and improved underwriting performance. However, in Q4 2024, natural disasters are expected to lead to higher insurance claims. The insurance payouts related to natural disasters in the U.S. are projected to account for at least two-thirds of the global total, with Hurricane Milton in October expected to result in significant insurance payouts. This is likely to cause a decline in underwriting profits. However, in a high-interest-rate environment, the investment income from float is expected to increase, partially offsetting the decline in underwriting profits.Although the float exceeded $140 billion in Q3, expanded underwriting losses could impact the company's long-term advantage of low-cost funding.

BNSF's rail business is expected to continue benefiting from higher unit volumes, increased employee productivity, and lower other operating costs. However, higher litigation expenses may partially offset these gains. BNSF's earnings are anticipated to reflect the increase in unit volumes, improved employee productivity, and reduced operating costs.

In Q3 2024, BNSF's earnings increased by 13.3% to $1.4 billion. For Q4, the company is expected to benefit from the recovery in U.S. freight demand, though rising fuel costs in Q4 could impact profit margins.

In Q4 2024, Berkshire Hathaway Energy (BHE) is expected to see a boost in revenue and profit margins, driven by higher energy prices.

BHE has invested $40.6 billion in renewable energy (including wind, solar, geothermal, and biomass) and energy storage, with plans to invest an additional $4.5 billion by 2026. These investments are not only advancing the company's goal of net-zero carbon emissions but also generating significant long-term returns. Rising energy prices in Q4 are expected to play a key role in driving revenue growth for BHE, with increasedretail customerrevenues and sales volumes anticipated as natural gas and electricity prices rise.

In Q3, BHE's earnings surged to $1.6 billion, as its renewable energy investments began to deliver returns.With higher energy prices in Q4, BHE is expected to see further revenue growth and improved profit margins.

Berkshire Hathaway's manufacturing and retail businesses are expected to maintain a steady and progressive tone in Q4 2024, consistent with the full-year performance. Despite challenges from high inflation and increased supply chain costs, the segment's revenue is likely to see modest growth, supported by the resilience of U.S. consumer demand and the boost from the holiday season.

Q4 is traditionally a peak consumption season in the U.S., with the real consumer spending index growing by 3.7% quarter-over-quarter in Q3 and projected to increase by 4.2% in Q4. The retail business is likely to benefit from the holiday shopping season, particularly through sales growth in sub-sectors such as home goods and food and beverages. However, rising costs may compress profit margins. Additionally, increased international trade frictions due to tariff policies following Trump's return to office may have some impact on the manufacturing and consumer goods businesses.

UBS analyst Brian Meredith has raised the target price for Berkshire Hathaway from $796,021 to $803,444, while maintaining a Buy rating on the stock. This adjustment is primarily based on an updated catastrophe loss model for 2025. Despite expecting higher insurance losses, UBS remains confident in Berkshire Hathaway's long-term growth and performance potential.

Zacks expects the company's Q4 earnings per share (EPS) to reach $4.43, representing a 13% year-over-year increase. However, Zacks notes that the insurance business's combined ratio may deteriorate due to high catastrophe losses and hurricane impacts, which could put some pressure on profitability.

Morningstar's analysis highlights that despite hurricane losses and adjustments to claims liabilities affecting the insurance business, Berkshire Hathaway's cash reserves have surged to a record $305 billion, demonstrating its strong financial flexibility.