Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) will report its third-quarter results after the market closes on Nov. 6, 2015. The company is expected to set records, as Berkshire will realize a gain on one of its largest holdings this quarter.
1. Berkshire's portfolio
Frankly, it hasn't been a good year for Berkshire's biggest stock-market stakes. Two of its worst laggards are its largest investments, American Express and IBM, which are down roughly 20% and 11%, respectively, in 2015. IBM's 2015 decline came in the third quarter of 2015 and will result in a big mark-to-market loss. (During the third calendar quarter, the S&P 500 fell a little more than 6%.)
For every loser, however, there are usually a few winning investments to offset them. This quarter, Berkshire Hathaway will recognize a massive pre-tax gain of about $7 billion from its stake in Kraft Heinz, which resurfaced as a publicly traded company in July.
2. GEICO and crew
Berkshire's insurers are some of the very best, creating regular profits in an industry known for volatile results. As gas prices declined, and Americans started driving more, car insurance profits came under pressure due to the rising frequency of insurance claims. Loss severities have also increased in the industry. (In insurance, frequency describes the number of losses, whereas severity describes the losses per event.)
Allstate (NYSE:ALL) reported that it suffered an 8.9% increase in property-damage frequency and a 5.4% increase in paid-claims severities during the third calendar quarter. Bodily injury frequency grew 6.4%, while paid severities fell 2.9%.
That likely doesn't bode well for GEICO's third-quarter results. Remember, GEICO generated only $53 million in underwriting profits last quarter, down from $393 million in the prior period. Buffett has also been critical of returns in its reinsurance business, mostly due to new capital flooding the industry. We'll have to see how the results pan out this quarter.
3. The other operating companies
Berkshire's other operating companies are growing in size and importance. The company made its biggest ever acquisition this quarter, purchasing Precision Castparts in a deal valued at more than $37 billion. It joins NV Energy, Lubrizol, and the recently acquired Van Tuyl auto dealerships as yet another company into which Berkshire can plow billions of dollars in capital for bolt-on acquisitions.
Berkshire's BNSF railroad remains one of its biggest uses of capital and largest profit centers. In Q3 of last year, the rails provided $1.04 billion in net earnings -- a figure investors would naturally like to see topped in this earnings report. Its railroads were helped by "improved service levels and lower fuel costs and other operating expenses" last quarter. Let's hope that performance continued into the third quarter.
Not about the quarter
The thesis for Berkshire Hathaway has never been about its short-term performance, but rather its ability to drive high returns on capital over long periods of time. Though it will inevitably have its ups and downs this quarter, Berkshire is perhaps more diversified than it has ever been, and a mark-to-market gain from Kraft Heinz sets the stage for a record quarterly earnings report any way you slice it.
Jordan Wathen has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway. The Motley Fool recommends American Express and Precision Castparts. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.