ii view: Buffett’s Berkshire Hathaway holds more cash than ever

Third-quarter results to 30 September 

• Operating earnings up 40% to $10.76 billion (£8.6 billion)
• Net loss attributable to shareholders of $23.5 billion ($18.8 billion), up from a loss of $10.45 billion
• Cash held of $157.2 billion (£125.8 billion) up from $147 billion in the previous quarter

ii round-up:

The Warren Buffett headed conglomerate Berkshire Hathaway Inc Class B (NYSE:BRK.B) detailed a gain in quarterly operating profit as cash held rose to a record high. 

Operating profit excluding gains or losses from its investment portfolio, climbed 40% in the third quarter to the end of September, as higher premiums and profits at its insurance business helped counter lower earnings at its energy and utility businesses.

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Shares in the S&P 500 company rose marginally in pre-market US trading having come into this latest news up 14% year-to-date. That’s similar to the S&P index itself during 2023. 

Overall, Berkshire profit including gains or losses from its investments held fell to a loss of $23.5 billion from a loss of $10.4 billion this time last year, hindered by a near 12% share price retreat during the quarter at iPhone maker Apple Inc (NASDAQ:AAPL), one of Buffett's major investment.

Berkshire, which operates over 90 businesses, detailed record cash held of $157.2 billion, up from $147 billion at the end of the previous quarter. That’s above the previous record of $149.2 billion in Q3 2021. 

The Nebraska headquartered company has been parking much of the cash in higher yielding short-dated US government Treasury bonds following a series of US central bank rate hikes from early 2022.

Profit at its insurance underwriting business climbed to $2.4 billion from a loss of $1.07 billion during the third quarter last year, more than countering falling energy and utility related profits, given the high comparative for the price of oil this time last year following Russia’s invasion of Ukraine. 

Cash used to buy back its own shares totalled $1.1 billion during the quarter, down from the second quarter’s $1.4 billion. Buybacks year-to-date total $7 billion. 

ii view:

Berkshire Hathaway shares trade on the New York Stock Exchange under the two classes of A and B shares, with the original A class shares carrying much higher voting power. Berkshire, which Mr Buffett has run since 1965, engages in a range of business activities including insurance and reinsurance, utilities and energy, and the manufacture of consumer and building related products. 

For investors, the lack of a major acquisition for Berkshire to utilise its cash mountain may frustrate some investors. The uncertain economic outlook including now elevated borrowing costs for consumers should also not be overlooked. Costs generally for businesses remain elevated, earnings at its insurance underwriting business can prove volatile given unforeseen natural events such as earthquakes, while the eventual departure of Mr Buffett from the business could potentially dampen investor enthusiasm.

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On the upside, the company owns a diverse range of businesses, meaning gains at one division often counter falls at another. The lack of any recent major acquisitions may underline management’s patience in waiting for an appropriate value buying opportunity, while its ongoing share buyback programme continues to offer share price support.

For now, and given the legendary judgement and experience of Mr Buffett and his team in utilising cash wisely, Berkshire shares look to remain worthy of their place in diversified and long-term focused investment portfolios.    

Positives: 

• Diverse portfolio of industries and businesses
• Company chairman Warren Buffett is regarded by many as a legendary investor and businessman 

Negatives:

• Subject to macro-economic and geopolitical uncertainties
• Management succession risk - Mr Buffett is in his 90’s

The average rating of stock market analysts:

Buy