Warren Buffett’s Berkshire Hathaway said third-quarter operating profit rose 6.6% thanks to contributions from newly acquired manufacturing businesses such as Duracell and Precision Castparts.
Operating profit rose to $US4.85 billion, from $US4.55 billion.
But on an pre tax basis (underlying in Australia) third-quarter profit fell 24% from a year earlier, when it recorded a large one-time gain its Kraft Heinz deal. The latest quarter saw a smaller one time profit on its Wrigley sale.
Quarterly net income fell to $US7.2 billion from the all time high of $US9.43 billion in the September quarter of 2015.
Berkshire had a gain of $US2.35 billion on derivatives and investments, driven by the sale of preferred shares in chewing-gum maker Wrigley. That compares with a gain of $US4.88 billion a year earlier from the KraftHeinz merger.
The manufacturing, service and retail segment, which includes Precision Castparts and Duracell, contributed $US1.7 billion to earnings in the quarter, up sharply from $US1.18 billion a year earlier. Berkshire completed the acquisition of Precision in January in Buffett’s largest ever deal.
Book value, a measure of assets minus liabilities and favoured by Buffett, rose to $US163,783 a share at the end of September from $US160,009 three months earlier.
The company’s cash pile rose to a record $US84.8 billion from $US72.7 billion at June 30. The figures for the cash pile were given for the first time in a quarterly report for a while.
The insurance ‘float, which is regularly referred to by the company and Buffett, rose to $US91 billion, from $US90 billion at June 30 and $US86.2 billion at September 30, 2015.
The company also reported a $22.1 billion stake in Wells Fargo & Co as of Sept. 30, suggesting it kept its 10% stake even as the bank became embroiled in a scandal over its creation of unauthorised customer accounts.
The value of the Wells Fargo investment fell from $US23.7 billion at the end of June, the decline can be explained by the more than 6% drop in the bank’s share price.
That suggests that Berkshire has kept its roughly 500 million share stake in the third-largest US bank (it was the largest before the scandal broke two months ago).
More details on that and other investments will be issued around November 14, the date when all big fund managers have to detail changes in their portfolios as at the end of the preceding quarter (September 30 in this case).
Berkshire is Wells Fargo’s largest shareholder.
Several influential US Senators sent a letter to the bank on Friday asking for more information about how it handled people who had complained about the sales practices, but been sacked. It opens another potential problem for the bank.
There are suggestions the legal cost of the scandal and compensation to most, if not all the 5,300 sacked employees involved in the false accounts scandal, could rise well above $US1 billion.
Berkshire Hathaway directors pointed to the losses on the Wells Fargo investment (and other companies, such as IBM), but said they believed these to be temporary and the price declines “were not significant”.
Operating profit of Berkshire’s huge insurance underwriting business, which includes car insurer, Geico Corp, its big reinsurance operation and Berkshire Primary, fell 34% to $US272 million in the quarter, while insurance-investment income’s operating profit improved to $US850 million.
Operating profit at the non-insurance businesses – which include the Burlington Northern railroad, utilities, mostly in the midwest and southwest of the US and energy segments – rose 38% to $US2.04 billion.
Revenue edged up to $US59.07 billion in the quarter from $US58.99 billion.
