Berkshire Hathaway reported a jump in profits for the third quarter as Warren Buffett’s business started to deploy the billions of dollars it has accumulated over the past decades.
The conglomerate that owns insurers including Geico, fast-food chain Dairy Queen, and railroad giant BNSF reported an 82 per cent increase in profits from a year ago to $30bn for the quarter, or $18,994 for each of the company’s class A shares.
The increase in profits was driven by Berkshire’s investment portfolio, which includes big stakes in Apple, American Express and Bank of America. It swelled by $25bn for the period as the US stock market continued to rally.
A modest increase in profits for its railroads, utilities and energy businesses helped to offset a net loss for its insurance business that dragged operating earnings down by a third, to $5.5bn.
Berkshire also spent $9bn on share repurchases for the period, setting a new quarterly record for stock buybacks after easily eclipsing the $5.1bn spent in the second quarter. The buybacks did little to alter the company’s massive cash pile, which dropped slightly from a record high of $146.6bn in the second quarter to $145.7bn.
“We are pleased to see this level of buybacks — it was frustrating to see them hoard, and grow, the cash pile,” said Jim Shanahan, an analyst with Edward Jones. “It had gotten to be such an enormous number.”
Berkshire purchased $2.4bn of its own stock in October, based on a drop in the company’s share count calculated by Mr Shanahan.
The surge in buybacks may help to temper investors who are uneasy with the fall in operating profits, in particular from Berkshire’s insurance business, said Cathy Seifert, an analyst who covers the company for CFRA Research.
Berkshire posted a $218m loss from insurance underwriting for the quarter, down from a $440m profit a year ago. Earnings for Geico fell by a quarter to $276m as the company — alongside other auto insurers — handed money back to customers in “policyholder dividends” that reflect a drop in car accidents with fewer drivers on the road through the pandemic.
“Geico’s results are lagging some of their top-tier peers,” Ms Seifert said. “A number of Geico’s competitors still produced top-line growth and operating earnings growth despite these policyholder dividends, because their underlying profitability continued to be helped by the fact people weren’t driving, so claims were lower.”
Mr Buffett has shown his dealmaking bona fides remain intact in recent months, after going years without clinching one of the megadeals for which he is known.
Berkshire closed its $8bn takeover of Dominion Energy’s natural gas transmission and storage business at the start of November. In August he placed a $6bn bet on Japan’s five biggest trading houses, including Mitsubishi Corp and Sumitomo Corp.
The company also invested in the initial public offering of cloud database company Snowflake, a wager that was led by Todd Combs, one of Mr Buffett’s top lieutenants.
However, investors have not rewarded his sprawling conglomerate. Shares of Berkshire are down 7.6 per cent so far this year, trailing the S&P 500 by more than 18 percentage points. It is one of the company’s worst years compared to the benchmark index since the financial crisis, although Berkshire is well ahead of the broader insurance industry.