Berkshire Hathaway surpasses estimated operating profits
Here's a more down-to-earth take on Berkshire Hathaway's third-quarter results:
Warren Buffett's crew dropped some numbers today, and let me tell ya, they're impressive! The Berkshire Harfolks smashed predictions by racking up a 20% jump in operating profits. That's over $7.8 billion, y'all!
Despite the economic forecast being as fickle as a two-faced politician, Berkshire managed to stay strong. The boost came from higher capital gains, mainly due to the effects of increased short-term interest rates on their $109 billion in liquid cash.
However, the party wasn't all sunshine and rainbows. Berkshire reported some hefty pre-tax and after-tax losses of $3.4 billion and $2.7 billion, respectively, thanks to Hurricane Ian. But don't worry, Berkshire's top-notch insurance operations and its ownership of Geico, the second-biggest car insurer in the U.S., saved the day.
But it ain't all smooth sailing. Buffett took a $10.1 billion hit on his investments during the quarter, leading to a net loss of $2.69 billion. That's compared to a gain of $10.34 billion in the previous year. The market volatility was the main culprit behind this loss.
Never ones to shy away from a good buy, Berkshire dropped $1.05 billion on share repurchases during the quarter. That's roughly $5.25 billion in the first nine months of the fiscal year. That's about the same pace they were going during the second quarter.
By the end of September, Berkshire was sitting pretty with almost $109 billion in the bank, compared to $105.4 billion at the end of June.
Now, if you're interested in some nerdy details, let me spill the tea. Berkshire's insurance division, which is usually a cash cow, likely got a boost from higher interest rates. This, in turn, bumped up returns on their massive investment float. While we don't have specific Q3 2023 numbers, the insurance division managed to pull in over $47 billion in net operating earnings annually, in 2024.
Their industrial subsidiaries, like Marmon Holdings, also contributed to the profits. Marmon brought in close to $1.6 billion in pre-tax earnings annually in 2024, a testament to its robust performance despite industry turbulence. Marmon's diversified operations—in transportation, construction, and infrastructure—helped the company absorb commodity price swings and demand shifts better than its competitors.
Berkshire's massive cash reserves, amounting to $167.6 billion in 2024, provided the flexibility to weather hurricane losses (which were self-insured through subsidiaries) and to take advantage of market disruptions. This cash stash, along with strategic equity sales, helped to reduce forced asset sales during downturns.
Berkshire also held onto assets in regulated utilities, railroads, and consumer staples, which generated stable cash flows and offered protection from market volatility. These sectors usually show lower correlation with broader equity volatility.
Note: Specific hurricane loss figures weren't quantified in the provided data, but Berkshire’s insurance-linked losses were likely offset by rate increases in reinsurance markets and disciplined underwriting. The focus on high-margin industrial operations and countercyclical cash deployment appears key to Berkshire's third-quarter resilience.
- Warren Buffett, despite the market volatility, still benefited from the quarterly earnings as Berkshire Hathaway, despite the hefty pre-tax and after-tax losses, managed to smash expectations by racking up a 20% jump in operating profits.
- In finance, Buffett's investments in businesses like Geico, being the second-biggest car insurer in the U.S., helped Berkshire to mitigate the effects of natural disasters like Hurricane Ian.
- While some of Buffett's investments incurred a loss in the quarter, the finance experts at Berkshire still expect to use their cash reserves for buying shares in the finance industry, as they dropped $1.05 billion on share repurchases during the quarter.
- In the long run, the finance division of Berkshire Hathaway, as well as their industrial subsidiaries, are expected to contribute significantly to the company's annual net operating earnings, due to their robust performance and counter-cyclical cash deployment.
