ii view: Warren Buffett's Berkshire Hathaway builds record cash pile

It bought back $7.6 billion of its own shares during this latest quarter. We assess prospects. 

Third-quarter results to 30 September 2021

• Operating earnings up 18% to $6.47 billion (£4.79 billion)
• Net earnings attributable to shareholders down 66% to $10.34 billion (£7.65 billion)
• Cash of $149.2 billion (£110.4 billion)
• Share buy-back of $7.6 billion, up from $6 billion in Q2 2021

ii round-up:

Warren Buffett's conglomerate Berkshire Hathaway (NYSE:BRK.B) reported an 18% increase in third-quarter operating earnings as economic activity continued to recover from pandemic disruption in the third quarter of 2020. 

Operating earnings, which excludes gains or losses from Berkshire’s investment portfolio, rose to $6.47 billion (£4.79 billion) in this latest quarter to the end of September, up from $5.48 billion this time last year. The measure, Mr Buffett’s preferred assessment of performance, was helped by recoveries in earnings from various businesses from railroads to energy operations and utilities. 

Berkshire shares are up by around 25% year-to-date, in line with the gain for the broad S&P 500 index. Shares for retail mammoth Amazon (NASDAQ:AMZN) are up by 8% year-to date, while shares of electric vehicle maker Tesla (NASDAQ:TSLA) have gained by more than 70% during 2021.

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Berkshire's quarterly profits including investment gains or losses came in at $10.34 billion (£7.65 billion), down from $30.14 billion in the third quarter of 2020. The return from Berkshire’s equity investments totalled $3.8 billion in this latest quarter compared to a $24.8 billion gain this time last year.

Berkshire’s cash mountain stood at a record $149.2 billion (£110.4 billion) at the end of the quarter, up from $144.1 billion (£103.7 billion) at the end of the prior second quarter. The company, which operates over 90 businesses, purchased around $7.6 billion of its own stock during the quarter, up from the $6 billion purchased in the second quarter to the end of June. 

The Omaha Nebraska headquartered company purchased a record $24.7 billion (£17.8 billion) of its own shares over the whole of 2020, including $9 billion in the final quarter of 2020.

Berkshire previously announced that Greg Abel, current vice chairman of Berkshire's non-insurance businesses, would become chief executive should Mr Buffett step down. Warren Buffett turned 91 back in August. 

ii view:

Berkshire Hathaway is a holding company with a wide array of subsidiaries engaged in diverse activities. The company, which Mr Buffett has run since 1965, engages in a range of business activities from insurance and reinsurance to utilities, freight rail transportation and manufacturing. 

For investors, a near-14% underperformance compared to the S&P 500 index over 2020, added to an 18% underperformance over the course of 2019, suggesting thinning investor patience with Berkshire’s inability to find a home to invest its cash mountain.  

But Buffett has been seeing value in his own Berkshire Hathaway shares. Berkshire bought a record $24.7 billion of its own stock last year, helping put some of its cash mountain to work. And new investment opportunities are still being found, if not yet on a scale to justify a major acquisition. Previously confirmed investment holdings have included Apple (NASDAQ:AAPL), Coca-Cola (NYSE:KO), Bank of America (NYSE:BAC) and Snowflake (NYSE:SNOW). In all, and with distorting central bank action still arguably very much in play on global asset prices, the judgement and experience offered by Mr Buffett’s Berkshire company remains highly reassuring.   

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:

Strong hold