Buffett's Berkshire Hathaway cash pile hits record $157 bln with deals scarce

By MarketWatch

The conglomerate posted a jump in operating earnings, aided by insurance but overall quarterly loss widened, hit by the stock market downturn

Warren Buffett's Berkshire Hathaway ended the third quarter with a record cash pile and reported a deeper overall loss due to weakness in the stock market but operating earnings rose.

The Omaha, Nebraska based company, which owns businesses including insurer Geico, railroad BNSF Railway and sportswear maker Brooks Running, posted a net loss of $12.8 billion, or $8,824 a class A share equivalent, compared with a loss of $2.8 billion, or $1,907 a share, in the year-earlier period. Investment losses rose to $23.5 billion from $10.4 billion a year earlier.

Accounting rules require Berkshire to include unrealized gains and losses from its investment portfolio when it reports net income, so a slide in the stock market will weigh on its results even if Berkshire's underlying businesses are performing well.

Shares of Apple (AAPL), Berkshire's largest stock investment, fell 12% in the quarter. Other big holdings also saw their stock prices decline. American Express shares (AXP) dropped 14%, while Coca-Cola (KO) shares retreated 7% and Bank of America (BAC) shares slipped 4.6%. Prices of the four stocks have turned higher in the fourth quarter though. Shares of a fifth big stock position, Chevron (CVX), advanced 7.2% in the third quarter, supported by a rally in oil prices but its shares have fallen in recent weeks as the price of oil pulled back.

Berkshire Hathaway Inc.'s cash pile reached a fresh record at $157.2 billion, boosted both by high interest rates and a dearth of deals where billionaire investor Warren Buffett.

The cash hoard, which Berkshire has largely invested in short-term Treasuries, hit its highest since level since the third quarter of 2021, the Omaha, Nebraska-based firm said on Saturday. The U.S. stock market's 2023 rally weakened in the third quarter as rising yields on longer-term government bonds gave investors better options for returns. The S&P 500 SPX dropped 3.6% in the three months through September.

However, the conglomerate also reported operating earnings of $10.76 billion, a jump on the prior year, as it benefited from the impact of elevated interest rates on the cash pile.

Operating earnings, which exclude some investment results, rose to $10.8 billion from $7.7 last year. The bottom line improved at Berkshire's insurance-underwriting business, and insurance-investment income rose, while earnings fell at the company's railroad unit and its utilities and energy unit.

Buffett, Berkshire's chief executive and chairman, has said operating earnings are the better gauge of the company's performance.

"We believe that investment gains and losses on investments in equity securities....are generally meaningless in understanding our reported quarterly or annual results or evaluating the economic performance of our operating businesses," Berkshire said in a securities filing on Saturday.

The company ended the third quarter with a record $157 billion in cash and equivalents, up from $147.4 billion at the end of the second quarter and beating the previous record of $149.2 billion set two years ago.

Berkshire bought back $1.1 billion of its own shares during the third quarter, after repurchasing about $1.4 billion in the second quarter, bringing the total for the first nine months of the year to about $7 billion. The company's Class A shares (BRK.A) closed at a record $563,072.75 on Sept. 19. They ended Friday at $533,815, up 14% this year.

Despite increasing Berkshire's acquisitions in recent years, the company has struggled to find many big deals leaving Buffett with more cash. Since the pandemic, he's bought shares in Occidental Petroleum Corp. (OXY) and struck a $11.6 billion deal to buy Alleghany Corp. Buffett has also leaned heavily on share repurchases amid the dearth of alternatives.

The deal drought has not damped investor enthusiasm for the company though. Its Class B shares (BRK.B) rose to a record high in September as investors looked at its diversified range of businesses as a hedge against any weakness in the economy. While the shares gave back some of those gains, the stock is still up almost 14% for the full year.

The company operates and invests across the U.S. economy, owning businesses including Geico, BNSF, Dairy Queen and See's Candies. Berkshire said its insurance businesses posted a profit of $2.42 billion versus a loss in the prior-year period, when the insurance industry was being hit.

The company's Geico unit, which had suffered from unprofitability in 2022, also posted a profit compared to the same period a year ago, as it cut advertising expenses by 54% year-to-date. Still, profit at BNSF, its railroad operations, fell 15% amid lower freight volumes and higher non-fuel operating costs.

-MarketWatch

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11-04-23 0941ET

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