Berkshire CEO Warren Buffett
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Berkshire Hathaway reported an 18% gain in after-tax operating profit in the third quarter to $6.5 billion on strength in its railroad, utility, and manufacturing businesses while continuing to repurchase a sizable amount of stock.
Berkshire (ticker: BRK.A and BRK.B) bought back $7.6 billion of stock in the third quarter, up from $6 billion in the second quarter and $6.6 billion in the first three months of 2021. CEO Warren Buffett continues to see Berkshire’s stock as the company’s best investment with Berkshire’s buyback in the third quarter exceeding its operating profits.
Berkshire’s after-tax operating earnings (excluding realized and unrealized investment gains) of $6.5 billion compared with $5.5 billion in the year-earlier period.
Barron’s estimates that Berkshire’s per-share earnings based on its Class A shares rose about 25% to $4,302 per Class A share in the third quarter, a larger increase than the absolute earnings figure due to buybacks that have reduced the company’s shares outstanding. The per-share earnings were below the FactSet consensus of $4,536 per share.
Berkshire’s insurance operations had an underwriting loss of $784 million in the period, reflecting $1.7 billion in after-tax catastrophe losses in a quarter with some large natural disasters including Hurricane Ida and European floods.
Total earnings in the quarter were $10.3 billion, down from $30.1 billion in the year-earlier period. The overall earnings figure reflects unrealized and realized gains in the company’s huge equity portfolio that flow through its income statement.
Buffett regularly tells investors to focus on the operating profits excluding investment gains or losses as a better measure of Berkshire’s financial performance.
Berkshire’s book value stood at about $316,000 per Class A share at the end of the third quarter, Barron’s estimates, up from $311,500 on June 30.
Berkshire Class A shares, which finished Friday at $434,000, now trade for about 1.4 times book value. The stock is up about 25% this year, slightly behind the S&P 500‘s total return.
The company continues to sit on a mountain of cash, which totaled $149 billion at the end of September, a record quarterly figure, up from $144 billion on June 30.
Berkshire also continued to be inactive in the equity market, selling a net $2 billion of stocks, Barron’s estimates, based on information in Berkshire’s third-quarter 10-Q.
Berkshire continued to repurchase stock in October, buying back $1.8 billion of shares from Sept. 30 through Oct. 27, the date of the 10-Q report, Barron’s estimates. Buffett prefers buybacks to dividends; the company doesn’t pay a dividend.
Berkshire has repurchased about 1% of its outstanding shares during each quarter in 2021. Its current market value is around $648 billion. Berkshire has repurchased $20.2 billion of stock so far in 2021 and is on pace for about $27 billion for the full year, above the $24.7 billion repurchased in 2020.
Burlington Northern Santa Fe, Berkshire’s big railroad unit, earned $2 billion before taxes in the third quarter, up 14% from the year-earlier period. Berkshire Hathaway Energy, the company’s large utility unit, saw pretax earnings gain 22.5% to $1.4 billion.
Berkshire’s diverse manufacturing businesses had profits of $2.4 billion, up 8% from the year-earlier period.
Geico, the company’s auto insurance unit, had an underwriting loss of $289 million in the third quarter, compared with a profit of $276 million in the year-earlier period, reflecting higher levels of claims and premium credits to insurance customers.
Berkshire’s holding in Apple ( AAPL
), its largest equity position, totaled $128.4 billion on Sept 30, or 907 million shares, according to the 10-Q. The Apple holding hasn’t changed since the start of the year. Berkshire’s equity holdings stood at $310.7 billion at the end of the third quarter.
Buffett sees scant opportunities to buy businesses. Berkshire spent $200 million on acquisitions in the first nine months of 2021, little changed from roughly $100 million in the same period of 2020.
Buffett has argued that acquisition prices are high as private-equity firms and special-purpose acquisition companies compete for deals. A price-conscious Buffett has decided to sit things out for now and let cash build on Berkshire’s balance sheet as he awaits what he called an elephant-sized deal.
Write to Andrew Bary at [email protected]
