Warren Buffett’s Berkshire Hathaway revealed a 20% rise in operating profit for the third quarter but also more than $US13 billion in losses as the value of his company’s huge investment portfolio was hit hard in the quarter’s big market selloff.
At the same time, Buffett kept buying back his stock at a pace that was a fraction of the amount a year ago.
Berkshire reported operating earnings from the 93 or so separate businesses in the group of $US7.761 billion in the third quarter, up 20% from year-earlier period and thanks to stronger contributions from most areas.
Revenue for the quarter rose 14.7% to nearly $US77 billion. Underlying earnings were $US7.930 billion, up from $US7.268 billion.
For the 9 months to September, revenues totalled $US224 billion – a rise of nearly 20% and underlying earnings for the 9 moths were $US25.91 billion, up from $24.08 billion.
But Hurricane Ian hit the huge insurance group and the insurance underwriting business suffered a loss of $US962 million and railroad earnings (from BNSF) dipped 6% to $US1.442 billion from $US1.538 billion in 2021 thanks to higher energy costs which are being covered by surcharges on customers.
But the insurance group’s investment income jumped to $US1.408 billion, up from $US1.161 billion a year earlier thanks to rising interest rates. Income from US Treasuries and other debt nearly tripled to $US397 million.
Earnings from the company’s utilities and energy businesses jumped to $US1.585 billion, up from $US1.496 billion in the same quarter of 2021.
Car insurer Geico (the second largest in the US) suffered its fifth straight quarterly underwriting loss, dropping $US759 million before taxes, which reflected more frequent and costly accident claims, rising used car prices and parts shortages. Written premiums barely changed, indicating continuing pressures until the higher costs ease.
Profits rose 6% at Berkshire Hathaway Energy and 20% from the company’s huge manufacturing, service and retail businesses including Clayton Homes, though rising mortgage rates will likely cut into future home sales.
Berkshire spent just over $US1 billion in buybacks in the quarter (down from $US7.6 billion a year ago. It invested $US3.7 billion in the quarter, mostly in Occidental Petroleum shares.
But the big market slide in the third quarter took a toll on Berkshire’s statutory results.
Accounting rules say companies have to now take unrealised gains and losses into their bottom line and the 9.3% slump in the S&P 500 in the quarter whacked reported earnings, pushing them deep into the red in a $US13 billion plus turnaround.
Berkshire reported a statutory net loss of $US2.69 billion in the third quarter, against a $US10.34 billion profit a year before.
All up Berkshire suffered a $US13.46 billion loss on its investments during the quarter, bringing its 2022 decline to $US82.36 billion. That compares to profits a year ago of $US4.9 billion for the third quarter and $US38 billion for the nine months to September.
The legendary investor told investors again that the amount of investment losses in any given quarter is “usually meaningless.”
Berkshire’s shares have outperformed the broader market this year, with the Class A shares dropping around 4% versus the S&P 500′s 20% decline.
Berkshire shares outperformed the S&P 500 in the stock in the third quarter with a fall of 0.6% against the massive 9% plus slump for the index.
“On balance, results were strong and demonstrated resilience given the impact of inflation, higher interest rates and supply chain challenges,” said Jim Shanahan, an Edward Jones & Co analyst. Other analysts were happy but worried about rising costs.
Berkshire ended September with $US109 billion in cash, up from $US105.4 billion in June.
It spent $US11.6 billion last month to complete the takeover of Alleghany Corp insurance business and its $US20 billion or so in cash.
The stronger US dollar also benefited Berkshire (which is a very domestically focused business) with $US858 million of gains from Berkshire’s non-dollar-denominated debt.
Berkshire also warned that rising rates may significantly lower any reduction in shareholder equity resulting from an upcoming accounting change for some insurance contracts.
