Breaking Down Berkshire Hathaway's Earnings

In this podcast, Motley Fool analyst Jason Moser and host Mary Long discuss:

• What to make of Berkshire Hathaway's latest sells.
• Turnaround ideas for TGI Friday's.
• Uber's expanding network.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our beginner's guide to investing in stocks. A full transcript follows the video.

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This video was recorded on Nov. 04, 2024.

Mary Long: There's a lot of noise, but we're staying focused on businesses. You're listening to Motley Fool Money. I'm Mary Long joined this morning by Jason Moser. J-Mo, great to see you. Thanks for being here. How's the going?

Jason Moser: Mary, it's great to be here. Everything's going very well. How about you?

Mary Long: Pretty good. I feel like we've got to address up top, that it's a big week here in the US, the election is tomorrow, and there's sure to be no shortage of news over the next few days. That said, we're making a concerted effort here at Motley Fool Money to do some intentional counter-programming, we want to be your go to place for business and investing news, and there is also plenty of that to go around this week. Just a heads up for listeners before, Jamo and I dive into today's show. We're not going to be running any B segments throughout this week. Shows will be slightly shorter than usual, but we're just going to focus on relevant business news of the day rather than playing two different segments. Jamo, before we get to the news of the day.

Jason Moser: Yes.

Mary Long: For this past weekend Saturday show, Ricky talked to Matt Argersinger and Alicia Alfieri about stocks that they'd be buying, no matter who's president. One of the questions that he asked, each of them was, what do you do to calm down in moments of stress, uncertainty, volatility. Those happen a lot in life, they happen a lot in investing. I thought I'd kick us off today by turning that same question to you. In life and/or in investing, what do you do to keep calm and carry on?

Jason Moser: I'm not a big social media guy, but I think tuning that stuff out. If you're on social media, I think getting off of social media and hey, listen, the other day, this weekend, I just went out and took a long walk. I think anything you can do to unplug and just get back just realizing all of what's around us, and listen, life is going to go on, no matter what happens. Just try to get out of that noise, focus on just that day to day, what makes your life good. If you can unplug, anytime you can unplug, I think that's always a good thing.

Mary Long: There's certainly a common theme between your answers, Alicia's answers, Matt's answers, I was thinking about what my answer would be for this question, and I settled on Walk Two. I think Ricky mentioned the same thing. We're very pro walking here at Motley Fool Money.

Jason Moser: To be fair, one of my favorite things to do while I'm walking is to play golf. For the golfers out there, [laughs] go play some golf but yeah, if you have just hobbies that you enjoy, I enjoy watercolor painting, Just anything you can do to take your mind to another place and just unplugging. I think that's a good one.

Mary Long: Unplugging, focusing on what you love, focusing on what brings you joy. As I mentioned at the top, we're going to focus on the businesses. One of those businesses that reported over the past couple of days was big name, Berkshire. Their third quarter results came out on Saturday. Before we dive into those a little bit, Jason, not many companies drop their earnings over the weekend. Do you care to remind us why it is that Berkshire chooses to do this?

Jason Moser: This is a good one and I'm not sure if people know this or how many people know this, but it's actually something he noted in his shareholder letter back in 2018. I'll read the quote, "Media reports sometimes highlight figures that unnecessarily frighten or encourage many readers or viewers. We will attempt to alleviate this problem by continuing our practice of publishing financial reports late on Friday well after the market close or early on Saturday morning. Back to that unplugged thing that we were talking about just a minute ago, it seems like he's just saying, look, we're trying to stay out of the madness of the day to day news during Monday through Friday work week and just give something for people to think about maybe over the weekend."

Mary Long: Berkshire choosing to do the unplugging for you. [laughs]

Jason Moser: Exactly.

Mary Long: Berkshire sold over $36 billion of stock this past quarter. Lots of that coming from shedding shares of Apple and Bank of America. The company bought 1.5 billion dollar over that same period. $1.5 billion is a lot of money to me, but in comparison to that 36 billion, pretty paltry. This is the eighth straight quarter during which Buffett sold more stock than he bought. People like to read a lot into Buffett's moves. Are you reading anything between these lines?

Jason Moser: No. Personally, not really. I think there are a number of different reasons why this could be happening. You said it right. When we're talking billions of dollars, that's a lot of money to any of us, and for most people. It's worth recognizing he in Berkshire Hathway, they're playing a different game. They're dealing with vast sums of money, and you've got to come up with ways to deploy that capital. I think always remembering that they're playing a little bit of a different game than we are. It's worth noting. We know, Mr. Buffett he's getting up there in years, of course, still doing really well, of course, but he could be thinking a little bit more forward toward a legacy. I think that's always something to keep in mind, but I also think most people would agree with this to an extent. Berkshire Hathway, Warren Buffett Charlie Muger, they've always been focused on value.

That's something I think many people when you think of Berkshire Hathway in regard to investing, there is a value bent to their philosophy. I think maybe he's looking at the way things stand right now, in relation to the way markets are valued. Maybe he's thinking, listen, there aren't a lot of great values out there right now, a bird in the hand, as they say. He's thinking, listen, we've got some great gains we can take advantage of. It's not like he's eliminating these positions, he's trimming some gains. We talk about the benefits of trimming some of those gains when you feel like you're overexposed so that you can then have some capital to redeploy and do other great ideas down the road. For me, I don't really read too much into that at all.

Mary Long: Just some more numbers to put those that $36 billion, which sounds so big into context, there is a lot of cash on the Berkshire balance sheet, $335 billion this quarter compared to $277 billion in the last. You just talked about Buffett potentially seeing the market as overvalued. Do you think that that's potentially why he's sitting on so much cash right now?

Jason Moser: It's possible. I think a lot of people look at this and think, are these signs that he's making a macro call? I think that's a very reasonable thing to deliberate. Maybe he's a little bit more pessimistic about the economy, at least in the near term, the future state of the economy and how the market might play out here in the coming years. It's worth noting. He's not even buying back his own stock, and we know that he loves to buy back his own stock when he feels like that value is there. I think there are a lot of things that could be at play there. It's worth noting, and this is probably in it pigging, but there's about $15 billion on that balance sheet that they actually owe for treasury bills that were purchased.

That cash balance is slightly lower, but regardless, and we're still talking about 300 billion plus dollar on that balance sheet that they are going to be able to deploy at some point or another. I think here it goes back to what we were just saying maybe he's thinking a little bit more about value. Maybe there are some legacy questions at play there, but again, I don't read too terribly much into it. Other than I think he still has a lot of vigor when you hear him talk. I guarantee you, he is really excited to be able to put that money to work. I just don't think he feels like he's found the best opportunity for it yet, and when you talk about that large of a sum of money, you really do have to find very meaningful opportunities.

Mary Long: Operating results are a better indicator of Berkshire's business performance than the net income figure. Buffett said this himself, and this is because of accounting rules, they dictate that Berkshire has to include unrealized gains and losses from its stock portfolio in its earnings numbers. When we look at those operating earnings for this quarter, they declined by about 6%. Does that spell trouble for Berkshire?

Jason Moser: I don't think so. I think this is part of their business model at ebbs and flows as expected, so I don't think it really speaks in anything to the core underlying business at all. There were some currency impacts at play here. I think there was a 1.1 billion dollar non cash loss as a result of the dollar's decline in the period. For me, businesses deal with that type of thing all of the time. When you talk about a company like Berkshire Hathway, currency impacts are absolutely going to come into play a little bit more so than for others, but again, going back to that core business, you look at the way a lot of the core properties of the business performed, really encouraging. I think after tax profits at Burlington Northern Santa Fe Railroad, that was up 13%- $1.4 billion dollar. You saw Berkshire Hathway Energy performed very well. That was up almost 3X, I think to 1.6 billion. Then the insurance investment income also was up considerably. I think 50%, thanks to the way the company is able to run that insurance business and take advantage of the float that they manage quarter in and quarter out.

Mary Long: Most investors would probably agree that it's always a good time to remind yourself of some Buffett aphorisms of which there are plenty, but this week feels maybe particularly well suited to talk a little bit about his folksy wisdom. Are there any favorite Buffett lines that you have found yourself repeating to yourself lately?

Jason Moser: There are so many. I feel like we could devote a whole show to it so we're not going to do that, [laughs] of course, but I think to me, one that always stands out. I think now is a great time. I think this is a terrific time, always to remember this. There's a quote he mentioned a while back, and he said the most important quality for an investor is temperament not intellect. I think that just really speaks to not letting your emotions take control. We talk about that a lot here at the Fool. Don't let those emotions dictate decisions, just take a step back, assess the situation. Take that longer term view and don't let those emotions really make hasty decisions that you might regret later on.

Mary Long: For what it's worth, I've been thinking a lot about his advice to write your own obituary and then work backwards from that, not for any morbid reasons, but because it's a reminder to me to focus on what you were talking about earlier. Find the joy that you can control, find the things that light up your life, your little corner of the world, and like work each day, to find that joy, to spread that joy, and strive to make your little corner of the world a bit better each day. It's pretty easy to be tricked into believing that, like what you actually can control and what's close to you is unimportant because it's smaller than so many of the big existential questions that were asked to face with, but it's not. What's small is often good. [laughs]

Jason Moser: Yeah, I think you're absolutely right. I certainly am not sitting here saying, it's easy to not let your emotions take over. That's something I think we all strive to do as investors over the entirety of our investing lives, but there's really a lot to be said for that.

Mary Long: In some other weekend news, this is quite the pivot from Berkshire, TGI Fridays filed for bankruptcy. [laughs] Executive Chairman Rohe Monaco, blamed this on the company's inability to bounce back financially from the COVID pandemic. Jamo let's do, like a fun little imaginary game. You're brought in to write this ship. They've got a whole restructuring plan. What's your turnaround plan for TGI Fridays look like?

Jason Moser: This is a good one because I really don't know. When I hear this question, the first thing I think of is JC Penny. The main reason why is I start to wonder, does the world need a TGI Friday? If you think about TGI Friday, it got its start. I think it was founded back in 1965 as a place for singles to meet each other. It was one of the first bars or restaurant concepts out there to really popularize the happy hour concepts. At that time, it was a novel concept. They were doing something that was really new and a lot of people started flocking to it. Understandably so, but as we all know,the restaurant industry is extremely competitive, and it's very difficult. Overwhelmingly, the odds tell you that if you try to start a restaurant, the odds tell you it's probably not going to succeed.

The fact that they got to where they've got to this point, hey, you got to tip your cap to them, to me, in a sense, it was like a Starbucks thesis. They were trying to establish that third place to a degree. I tell you if I'm trying to get this company back on the right track, if I'm the owner of the business, probably looking hire a really smart CEO. [laughs] I'm trying to hire some an operator in this new fangled future restaurant industry, because the restaurant industry has just changed so much through the years. Not only the stuff that restaurants are serving, but the way that we're actually getting that food as consumers; delivery, pick up. all of that stuff just wasn't really a thing back then. I don't know if there is necessarily a world where TGI Friday needs to exist today, whether it's TGI Friday or Chilies, I they're both the same thing. I guess I don't really freak on either one, but I think they've just found themselves in a really tough spot. I'm just not sure that we live in a world where so many of those concepts need to exist today.

Mary Long: Here I was thinking that you were going to say, we're talking about cooking before we start recording. I thought you were going to say, yeah, I've got a turnaround plan. [laughs] Hire me as a head chef.

Jason Moser: No way.

Mary Long: With some smoked pork shoulder. [laughs]

Jason Moser: Listen, I love cooking you know it, but, man, I tell you, I do not have the time to devote to something like that. I enjoy being able to spend it with my family and friends and playing golf and painting, as I said before. The restaurant business is just a brutal one. It's really hard, requires a lot of long hours and even then, all of that hard work doesn't even come close to guaranteeing success on any sustainable basis.

Mary Long: I like that you mentioned that it started as a place for singles to meet. I think if I were asked for a turnaround plan, it might be; this is half baked just as we're starting to talk here, but should TGI Fridays pivot and try to enter into the dating app space, would that be interesting?

Jason Moser: Feels like that's getting a little bit commoditized too Mary.

Mary Long: Man, business is tough. Turns out.

Jason Moser: It is. It really is, but that's the fun part about it.

Mary Long: To stick with the restaurant business for a moment, you are seeing TGI Fridays is not the first restaurant chain to announce troubles throughout the year. Per the Wall Street Journal, restaurant chains and operators are on track to declare the most bankruptcies this year than they have in decades with the exception of 2020. We talked about Buffett earlier. Another favorite quote from him is, "To be fearful, when others are greedy, greedy, when others are fearful." Seems to me there's a lot of fear in the food industry right now. Are there any companies? I know that you're not looking to leave the Fool and go start a restaurant. [laughs]

Jason Moser: No.

Mary Long: But, are there any companies in this space, you're watching closely from an investment perspective that might have you feeling a little greedy?

Jason Moser: For sure. To me, I'm really impressed with what Cava is doing. Before Cava ever went public, I just love the concept. I love the food. I think Chipotle really set the standard for fast casual and differentiation. They're giving us a new experience with better food. You're paying a little bit more for it, but I think a lot of people the numbers of numbers bear this out. People are willing to pay for that. Cava absolutely seems to be following its footsteps. Now, with that said, I look at Cava today the stock price itself reflects a lot of enthusiasm. I wouldn't say that I'm feeling so greedy about Cava today but I definitely will say, Cava is a restaurant business that is high up on my watch list because of the operations, because of the market that they serve, that differentiation, the Mediterranean offerings that they have. If there is any a big sell off on the stock on some an earnings miss or, some snaffoo, by manager, or whatever it may be, absolutely, my interests would be piqued there.

Mary Long: We're going to keep on this look back train because there was a lot of earnings that came out last week, some of which we didn't get to. I knew I was talking to you today. I love talking to you about Uber. Uber reported earnings last week. Again, with all the big tech earnings coming out. We did not quite get to hit them, so I thought this would be a prime opportunity to get your take on some stuff. Top line up front, Uber's results met or beat the expectations that management had laid out the quarter before. Gross bookings were up year over year, hit $41 billion. Revenue was up, 20% year over year, earnings per share, beat analysts expectations pretty significantly and yet, Jamo, the stock was down, almost 10% on Thursday. What? Why was Wall Street not happy with these numbers?

Jason Moser: What in the world?

Mary Long: Wild.

Jason Moser: Mary, I love Uber, I tell you. Going back to a few years ago, when we took our family to Paris for spring break vacation, and we Ubered everywhere. We never even bothered with a rental car. Uber is just tremendous. I think just such a convenient and helpful service. For me, I think this is just a tremendous business. I don't read too much into the short-term reactions there. There's that buy the rumor sell the news saying, and maybe there's something that plays out there. Maybe the market took a look at the investment gains of the portfolio as that contributes to earnings, and they thought, well, that's not really a core part of the business. Maybe there were some expectations there regarding future bookings growth, the guidance there that weren't as strong as some had hoped, but, we see this all the time. Companies report great results.

They can report great guidance, and the market still sells the stock off. It doesn't make any sense, defies all logic, but like you noted, the numbers there were really impressive. The business just continues to perform. They make their money a number of different ways, and it really all boils down to transportation and they just built this amazing network. It's all tech based. It's a simple app. They're incorporating more into it. I don't really sweat the small stuff, and to me, this really equates to small stuff.

Mary Long: There were rumors in October that Uber might be looking to expand that network even more. Some talks that they might be looking to acquire the online travel booking Expedia. Uber CEO, Dara Khosrowshahi, he was the CEO of Expedia before coming to Uber. Are you putting this deal on your 2025 Bingo card?

Jason Moser: I am not. I actually hope this doesn't happen. I don't think it needs to happen. I think acquisitions of this size are just really difficult. I'm not sure that Uber really needs to do it. I understand I understand the interests there. Dara still serves on the board at Expedia, and obviously is very familiar with that business given his history. To me,I understand the benefits or at least the attraction there. A merger, it could create a more seamless travel experience when you combine ride sharing with things like travel booking. It helps them expand their customer base to an extent.

They can create a more personalized experience. When you talk about data integration, but again, acquisitions are always challenging, and acquisitions of this size are just really tough. I'm just not sure that they need to do it, but I do get their interest in that greater travel opportunity. As we know, travel, when you consider just the greater travel market opportunity on a global scale. They were talking about hundreds of billions if not trillions of dollars and given Uber size today. I do get why they would be attracted, but I just don't think that they need to do it.

Mary Long: Want to close us out with a different question. There are lots of different headlines that are sure to be hitting over these next several days. Some business related, some, obviously not, so as we close up today's show, Jamo, I was wondering if you had one headline or new story that came out this year that surprised you in a good way.

Jason Moser: So far this earning season, I think, to me, I was very encouraged by the quota that Tilio just reported Tilio as a company, we've spoken about a lot on these shows over the last several years. It's one that really saw the highest of highs, and now it saw the lowest of lows, too, as questions regarding the business, and its overall opportunity came more into play, but they've undergone some changes with the business. They've got new leadership there with Khozema Shipchandler, who's the new CEO of the business. Newish, I should say, but he was with the company before. He has a lot of familiarity with the business, and seeing the changes that he's made, he's not focusing on altering the core business, but really he seems to have a bit more of an operator's focus. He's like, listen, we've got this opportunity in front of us, and we have this business that's doing really well. Now let's really start trying to bring everything down to the bottom line.

I look at the report that Tilio reported 10% revenue growth there, noting that active customers now stand at over 320,000 versus 306,000 a year ago, dollar based net expansion rate. This quarter was 105% versus 100% a year ago, or 101% a year ago. In the management, they also raised guidance for the full year expecting modest revenue growth there close to 8%. Still on target for their gap operating profitability goals there by, I think the end of 2025, if I'm not mistaken.

This is one of those software as a service type businesses where profitability can elude investors for a long time. That doesn't matter when money is flowing freely, but in an environment where it's not, the market starts to get a little bit more nit picky there, rightly so, but it does seem like they have this business headed in the right direction, continuing to focus on bringing that share based compensation down as a percentage of overall revenue. I think, finally, I will say that they introduced a $3 billion share repurchase authorization about a year ago. They've almost exercised that entire $3 billion. The thing is, when you see this, with tech companies a lot of times those share repurchase authorizations, they just offset stock based compensation. You don't see that share count come down. The great thing here is that share count 40 has come down 15% since the peak in 2022. They were really, I think, taking advantage of a depressed share price, buying back shares where they saw real value. Maybe a Warren Buffett, [laughs] who knows? But for me, the stock is up, I think, close to 20% since that earnings release, just about maybe a week ago. As a Tilio shareholder, or someone who's recommended the stock, for me, that was really encouraging to see.

Mary Long: Jason Moser, always a pleasure having you on the show, and getting to start the morning with you. Thanks so much for the time. Thanks so much for the information and I hope you find plenty of opportunities this week to do all those activities that bring you joy, walking, cooking, golfing, painting. You name it.

Jason Moser: Always look at Mary. Thanks so much.

Mary Long: As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and are not approved by advertisers. The Motley Fool only picks products that they personally recommend to friends, like you.

Bank of America is an advertising partner of Motley Fool Money. Jason Moser has positions in Apple, Chipotle Mexican Grill, and Twilio. Mary Long has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Bank of America, Berkshire Hathaway, Chipotle Mexican Grill, Twilio, and Uber Technologies. The Motley Fool recommends Cava Group and recommends the following options: short December 2024 $54 puts on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.