Berkshire Hathaway Q1 2022 Earnings Preview: What Investors Should Watch

Focus on Berkshire Hathaway's operating income as the key indicator of business health.

Key Highlights

• Analysts forecast earnings per share (EPS) around $2,999.94, a decline from $7,638.00 in Q1 2021.
• Operating income is projected to decrease for the first time in over a year.
• Revenue is expected to grow modestly for the second consecutive quarter.

In 2021, Berkshire Hathaway (BRK.A) significantly increased its cash reserves to over $140 billion, recovering from the COVID-19 pandemic's impact. The company is now strategically deploying this capital, including its recent $11.6 billion acquisition of insurance firm Alleghany, anticipated to close by year-end—a major move for Berkshire in recent years.

Investors eagerly await the Q1 2022 earnings report on April 30, seeking insights on Berkshire's future cash deployment and overall financial health amid a contracting U.S. economy. Analysts anticipate a sharp EPS decline despite modest revenue growth.

Berkshire's reported revenue and EPS encompass its extensive investment portfolio, including stocks and derivatives, which can cause significant volatility in financial results. To gain a clearer understanding of the core business performance—spanning insurance, railroads, energy, and retail—investors should focus on operating income, which excludes investment gains and losses.

Operating income is expected to dip for the first time in six quarters, though the decrease should be less severe than the net earnings drop. Over the past year, Berkshire's stock has outperformed the broader market, delivering a 20.8% total return compared to the S&P 500's -0.3%.

Berkshire Hathaway’s Earnings Performance History

In Q4 2021, Berkshire exceeded expectations with EPS rising 20.2% year-over-year and revenue increasing 2.8%, marking recovery from pandemic shocks despite ongoing supply chain challenges. Conversely, Q3 2021 saw a 63.8% EPS drop and 20.3% revenue decline, primarily due to reduced investment portfolio gains.

For Q1 2022, analysts predict a 60.7% EPS decline year-over-year amid sluggish 4.0% revenue growth, signaling the first EPS drop since Q3 2021. Full-year 2022 forecasts indicate a 63.9% EPS decrease and a 13.8% revenue decline, the steepest in years.

Source: Visible Alpha

Understanding the Critical Metric: Operating Income

Berkshire Hathaway defines operating income uniquely as after-tax income excluding investment gains and losses. This metric offers a clearer view of the performance of its diverse operating businesses by filtering out market-driven volatility from its substantial investment holdings.

Pre-pandemic, operating income showed modest growth, dipped 8.6% in 2020 due to COVID-19, then surged 25.2% in 2021. Q4 2021 was particularly strong with a 45.2% year-over-year increase. However, analysts expect an 8.0% operating income decline in Q1 2022—the first since Q3 2020—with a modest 2.5% rise projected for the full year, reflecting a slowdown.

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