Berkshire Hathaway may increase earnings after Occidental accounting change By Reuters

By Jonathan Stempel

(Reuters) – Warren Buffett’s Berkshire Hathaway (NYSE:) Inc may quickly see a lift to its backside line after altering its accounting for its large stake in Occidental Petroleum Corp (NYSE:).

In its quarterly report on Saturday, Berkshire stated it adopted the fairness methodology of accounting for its 20.9% stake in Occidental, which is value greater than $14 billion.

Berkshire plans, beginning within the fourth quarter, to report its share of the Houston-based firm’s outcomes with its personal, with a one-quarter lag.

Accounting guidelines usually require the fairness methodology when one firm’s stake in one other reaches 20%, reflecting an assumption that the primary firm would possibly exert vital affect.

Berkshire has signaled no intention to try this at Occidental, however in August received U.S. Federal Vitality Regulatory Fee permission to purchase as much as 50% of the oil firm’s widespread inventory.

The regulator known as the rise “in step with the general public curiosity,” after Omaha, Nebraska-based Berkshire stated it will not undermine competitors or increase client prices.

Analysts on common count on Occidental to publish greater than $10 billion of revenue this yr in accordance with Refinitiv I/B/E/S, after oil costs rose following Russia’s invasion of Ukraine.

Occidental’s inventory value has greater than doubled in 2022.

Berkshire additionally owns $10 billion of Occidental most well-liked inventory and has warrants to purchase 83.9 million widespread shares for $5 billion, or $59.62 every, which is 23% beneath the present $73.27 inventory value. The 20.9% stake doesn’t embrace these holdings.

“Reporting its proportional share of earnings will scale back Berkshire’s price-earnings a number of, making its inventory look inexpensive,” stated Jim Shanahan, an analyst protecting Berkshire at Edward Jones & Co.

Berkshire makes use of the fairness methodology for its 26.5% stake in packaged meals firm Kraft Heinz (NASDAQ:) Co and 38.6% stake in truck cease operator Pilot Journey Facilities.

Kraft Heinz is managed by Berkshire and Brazil’s 3G Capital, and its board consists of three administrators from Berkshire. The Pilot stake is predicted to develop to 80% early subsequent yr.

Berkshire doesn’t use the fairness methodology for its 20.3% stake in American Specific Co (NYSE:), reflecting its 1995 settlement with the Federal Reserve board of governors to maintain the stake passive.

Some buyers and analysts have stated Berkshire may finally purchase Occidental, diversifying its vitality portfolio.

Berkshire paid $26.5 billion in 2010 for the BNSF railroad, after earlier amassing a 22.6% stake.