Warren Buffett’s Berkshire Hathaway reported a two-thirds decline in profits in the third quarter compared to the same period last year, while its cash pile hit a new record despite increased share buybacks.
The sprawling conglomerate said on Saturday that its net earnings fell to $10.34bn, or $6,882 per class A share, in the third quarter.
Berkshire’s operating income, which Buffett prefers as a measure of performance because it strips out swings in its stock portfolio, was up by 18 per cent from the year before to $6.5bn.
Even as the investment company ramped up share buybacks to repurchase $7.6bn worth of its own stock in the third quarter, bringing the nine-month total to just over $20bn, its cash pile increased to a record $149bn.
Some longtime investors have become frustrated by Buffett’s reluctance to strike a big deal and put Berkshire’s growing cash pile to work, as the legendary investor has baulked at high valuations.
The conglomerate’s diverse business units have allowed it to ride the broad economic recovery in the wake of the Covid-19 pandemic, but are now leaving it exposed to the subsequent challenges the public health crisis has created.
Although operating revenues for its railroad division were up 11.8 per cent from a year ago to $4.59bn, Berkshire acknowledged the business “experienced higher materials, freight and other input costs”, which it attributed to “ongoing disruptions” in global supply chains.
Berkshire also warned that it did not expect significant increases in aerospace revenues or earnings in the near term at Precision Castparts, the metals fabrication company in bought in 2016, due to supply chain disruptions and the continued impact of the pandemic on commercial air travel.
Some of the company’s other businesses, spanning housing, manufacturing and consumer retailing, paint a relatively robust picture of customer demand, but have also been affected by reduced availability of inputs caused by disruptions along the supply chain.
One of the weak spots in performance was Berkshire’s insurance underwriting business, which saw losses increase to $784m in the three months to September due to catastrophe events such as Hurricane Ida in the US and floods in Europe. However, insurance investment income was up slightly in the third quarter to $1.2bn from $1bn during the same period last year.
Berkshire’s class A shares are up 26.3 per cent so far this year, on par with the benchmark S&P 500.
The fair value of Berkshire’s equity investments increased less than 1 per cent to $310.7bn between June 30 and the end of September. About 70 per cent of the value of that portfolio is composed of four companies; American Express, Apple, Bank of America and Coca-Cola.
Berkshire said it owned $128.4bn of Apple shares at the end of September, up from $124.3bn at the end of June and marking the biggest increase in that quartet. The Coke investment was the only one of the four to have declined during the September quarter.