According to the financial news app, Berkshire Hathaway (BRK.A.US) under the ownership of Buffett will announce its third-quarter performance on November 2 (Saturday). This much-anticipated performance, Wall Street is not only concerned about the company's profit performance. The stock buybacks, cash levels, and the size of Berkshire's holdings in Apple (AAPL.US) during this period will receive widespread attention.

According to analysts' widespread expectations, Berkshire's Class A per share operating profit is expected to decrease by 1%, to $7,335, equivalent to $10.5 billion, compared to $7,436 in the same period last year, and a record $8,066 in the previous quarter.

According to accounting rules, the general expectations for the third quarter exclude the book income that Berkshire's stock investment portfolio may contain.

Share buyback

CEO Buffett has always advised investors to focus on long-term returns rather than individual quarterly performance. Therefore, share buybacks are expected to be closely watched as investors can gauge Buffett's view on his group from them.

Berkshire Hathaway only repurchased $0.345 billion in the second quarter, lower than around $2.6 billion in the first quarter, making it the lowest quarterly repurchase total in over four years.

Warren Buffett has always controlled the pace of stock buybacks, and he is very sensitive to prices. As the stock price rises, Berkshire Hathaway has reduced the scale of buybacks this year.

Berkshire Class A shares have risen by 26% year to date, outperforming the S&P 500 index's total return rate by about two percentage points.

Analysts expect that the company's buybacks in the third quarter may once again be at a low. One sign is that based on the calculation of the company's stock quantity at the end of July, Berkshire did not buy back any shares in the first three weeks of July.

Apple holdings

Berkshire's cash and equivalents have surged from about $167 billion at the end of 2023 to $277 billion as of June 30, and could potentially approach $300 billion. Part of the reason is that Berkshire sold over $10 billion of Bank of America (BAC.US) stocks in the third quarter. One factor that may depress cash flow is the significant gains from the sale of Apple stocks this year, which could lead to a total tax bill exceeding $15 billion.

However, a current issue is whether Berkshire will further reduce its significant stake in Apple after cutting its holdings in the company by nearly 50% to 0.4 billion shares in the second quarter. Buffett is very likely to have ceased selling in this round.

Berkshire's stake in Apple will be disclosed in a 10-Q filing, which will be released along with the financial report. Apple remains Berkshire's largest holdings, valued at approximately $93 billion, accounting for 30% of the company's equity investment portfolio worth over $300 billion.

Negative impact

As for the company's profit, disaster losses from large property and casualty insurance businesses (including Geico, the third largest auto insurance company in the USA) may affect earnings.

UBS analyst Brian Meredith expects disaster losses of about $1 billion due to the impact of Hurricane "Helen" and other storms. The more destructive Hurricane "Milton" occurred early in the fourth quarter, and Meredith expects Berkshire to incur approximately $2 billion in disaster losses this quarter.

Another potential negative factor for Berkshire is foreign exchange losses. Berkshire has around $15 billion in foreign currency debt, with most of it in Japanese yen. When the US dollar depreciates as it did in the second quarter, the value of these debts increases, suppressing reported earnings.

Estimated post-tax non-cash foreign exchange losses for Berkshire could reach $1 billion. The issuance of yen-denominated debt provides significant funding for its equity investments in five Japanese trading companies, currently valued at over $20 billion.

Meredith's earnings per share forecast for Berkshire is $8448, more optimistic than market expectations.

It is estimated that the book value per Class A share of Berkshire could rise to around $0.44 million, a 5% increase from the second quarter. The higher book value will reflect the performance of its stock portfolio led by Apple and American Express (AXP.US). Berkshire's current stock price is about 1.55 times its third quarter book value valuation.