Buffett’s Berkshire doubles profit, repurchases $900m stock in Q3
Strong result gives Buffett more cash to deploy, even as he has admitted struggling to find a place to put those earnings
New York: Berkshire Hathaway Inc., the conglomerate run by billionaire Warren Buffett, on Saturday said its quarterly operating profit nearly doubled as its insurance business dodged hurricanes and benefited from lower taxes.
The strong result gives Buffett more cash to deploy even as the well-known bargain-hunter has admitted struggling to find a place to put those earnings to work and resorted to buying back nearly $1 billion (Dh3.67 billion) in his own company’s stock in the latest quarter.
Operating profit in the third quarter doubled to $6.88 billion from $3.44 billion a year earlier, and higher than the $6.11 billion expected by Wall Street, according to IBES data from Refinitiv.
Helping the company’s massive insurance operations were lower estimated liabilities from property and casualty insurance in prior years and lower taxes. The year prior included major losses due to three US hurricanes and an earthquake in Mexico.
Insurance underwriting income was $441 million in the third quarter, compared to a loss of $1.4 billion in the year-ago period. “This is absolutely one of the biggest quarterly earnings reports that has ever come out of a United States corporation,” said Bill Smead, chief executive of Smead Capital Management in Seattle, a Berkshire shareholder.
Berkshire said third-quarter net income rose more than 355 per cent to $18.5 billion, though that reflected a new accounting rule requiring it to report unrealised investment gains with earnings. Buffett said the rule could lead to “wild and capricious” results and can mislead investors, who he said should look at operating profit instead.
Berkshire’s effective tax rate for the third quarter was 19.2 per cent, compared to 25.3 per cent in the year-ago period following a reduction of the corporate tax rate that US President Donald Trump signed into law in December. Many US companies’ reported results have been skewed by the law’s impact.
Insurance provides a stream of cash that Berkshire can invest around the world. Float, or insurance premiums collected before claims are paid and which help fund Berkshire’s growth, ended September at $118 billion.
After relaxing a policy that had effectively prevented Buffett from buying back the company’s shares at current prices, Berkshire said it bought $928 million of its own shares in the third quarter.
Berkshire ended September with $103.6 billion in cash, short-term Treasuries and other similar investments.
Buffett’s last big acquisition was in January 2016, when Berkshire paid $32.1 billion for aircraft parts maker Precision Castparts.
Berkshire’s results also improved across its railroad, utilities and energy, manufacturing, service and retailing, and financial products business lines.
Berkshire’s Class A shares closed on Friday at $308,411.01 per share, delivering a total return of 3.6 per cent for the year, a bit ahead of the S&P 500’s 3.4 per cent return. And the company’s book value per Class A share was $228,712 on September 30, higher than $217,677 one quarter ago.
Smead said it makes sense for Buffett to buy back stock. “He is the most successful value investor of all time and his company’s stock in relation to book value is at an extreme value in a world where value is incredibly attractive.”