ii view: diversification aids Berkshire Hathaway profits

The experience of Warren Buffett, plus cash to fund massive share buybacks. We assess prospects. 

Third-quarter results to 30 September 

• Operating earnings up 20% to $7.76 billion (£6.75 billion)
• Net loss attributable to shareholders of $2.69 billion, down from earnings of $10.34 billion
• Cash held of almost $109 billion (£94.8 billion)

ii round-up:

The Warren Buffett-run conglomerate Berkshire Hathaway Inc Class B (NYSE:BRK.B) has detailed a gain in business operating profit but an overall group loss when allowing for the fall in the value of its investments. 

Third-quarter operating profit to the end of September rose 20% to $7.76 billion, aided by a similar size gain for a part of its insurance business, along with improvements for other businesses such as its utility and energy related operations. 

An overall quarterly net loss of $2.69 billion came as Berkshire made an investment loss of $10.1 billion on its stock market holdings. That followed a retreat in asset prices as central banks use interest rates to tame inflation, raising concerns about a potential global recession.

Shares for Berkshire are down by close to 4% year-to-date, outperforming a one-fifth fall for the S&P 500 index. Shares for phone giant Apple Inc (NASDAQ:AAPL), America's biggest company, have fallen by a similar amount in 2022, while energy giant Chevron Corp (NYSE:CVX) has gained more than a half. 

The gain in Berkshire’s operating earnings, Mr Buffett’s preferred assessment of performance, was partly countered by falls in earnings for both its railroad and insurance underwriting businesses. Investment losses for the year-to-date now total almost $64 billion. 

The Omaha, Nebraska headquartered Berkshire, which operates over 90 businesses, bought back a further $1 billion of its own stock during this latest quarter. That’s similar to the previous quarter and brings the year-to-date total to $5.25 billion, down from $20.1 billion at the nine month point during 2021. 

ii view:

Led by legendary investor and businessman Warren Buffett, Berkshire Hathaway’s many operating companies employ over 350,000 people. Berkshire, which 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, a highly uncertain economic outlook including a cost-of-living crisis for consumers and expected further interest rate rises cannot be ignored. Rising costs for businesses generally warrant consideration, as does the eventual departure of Buffett from the business, which could well dampen investor enthusiasm.

On the upside, a diversity of businesses has helped it again report an improvement in operating profit. Recent investment acquisitions, if not full business takeovers, have included shareholdings in Occidental Petroleum Corp (NYSE:OXY), Hewlett Packard Enterprise Co (NYSE:HPE) and Bank of America Corp (NYSE:BAC), while its ongoing share buyback programme continues to offer support.

In all, and with the distorting impact of previous central bank action on global asset prices still arguably in play, the judgement and experience offered by 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