Key Points
- Berkshire Hathaway’s profits increased by 17%, driven by a strong rebound in its insurance businesses due to a mild hurricane season.
- The company is preparing for a CEO transition in January, with Greg Abel set to succeed Warren Buffett, who will remain chairman.
- Berkshire’s massive cash pile grew to $381.7 billion, and the company did not repurchase any of its stock, suggesting that Buffett considers it overvalued.
- The company’s bottom-line earnings of $30.796 billion were distorted by $17.3 billion in paper investment gains.
Warren Buffett’s company, Berkshire Hathaway, reported a 17% increase in profits. This comes as the company prepares for the legendary 95-year-old investor to step down as CEO in January.
Even a massive $9.7 billion investment in OxyChem last month won’t significantly reduce Berkshire’s huge cash pile, which stood at $381.7 billion at the end of September. This deal was the company’s biggest in years, but it’s just a drop in the bucket for Berkshire’s massive cash reserves.
The biggest news for most investors is that Greg Abel, currently Vice Chair, will succeed Buffett as CEO in January. Buffett will remain as chairman of Berkshire. The company’s Class A stock is currently down from its peak of $812,855, reached just before Buffett announced he would step back at the annual meeting in May. It closed on Friday at $715,740. Interestingly, Berkshire did not repurchase any of its own stock in the quarter, suggesting that Buffett still thinks it’s overvalued.
CFRA Research analyst Cathy Seifert expects that investors will demand more details from Berkshire once Abel takes over. She also predicts that there will be growing calls for the company to finally start paying a dividend if it can’t find better uses for all its cash. However, with Buffett still as chairman, there may not be any immediate changes.
“The lack of discussion and disclosure — I think has a lot of the investment community frustrated,” Seifert said. Berkshire has never had public or investor relations departments and skips the quarterly investor calls that most public companies hold. Buffett has always said he prefers to share results with all investors at the same time on Saturdays, giving them the weekend to think about the results before the markets reopen.
Edward Jones analyst Jim Shanahan is excited to see what changes Abel might make as CEO, whether he will build a team of executives to help manage the various businesses, and how he will decide how to invest Berkshire’s cash. But investors might have to wait until Abel’s first letter to shareholders in late February or until the annual meeting in May to learn more about his plans.
“I just think it’s a chance that Abel is going to do some things differently,” Shanahan said. “I think that with him being more involved in operations than Warren had been historically, I think that he’ll likely have a team around him, which would be different.”
Abel has been managing all of Berkshire’s non-insurance businesses since 2018. The CEOs who report to him say they are impressed by his business skills, sharp advice, and his willingness to help when they have questions.
Berkshire announced on Saturday that it earned $30.796 billion, or $21,413 per Class A share, in the quarter. This is up from last year’s $26.251 billion, or $18,272 per A share. However, these bottom-line figures are always affected by the current value of Berkshire’s huge investment portfolio and any stock sales, which added $17.3 billion to the company’s profits this year.
This is why Buffett has always advised investors to focus on Berkshire’s operating earnings to get a better idea of how its many operating companies are performing. These include well-known insurers such as Geico, BNSF Railway, several major utilities, and a variety of manufacturing and retail companies.
By this measure, Berkshire’s operating profit jumped to $13.485 billion, or $9376.15 per Class A share, thanks to a strong recovery in its insurance companies. A year ago, Berkshire reported operating earnings of $10.09 billion, or $7,023.01 per A share. The four analysts surveyed by FactSet Research had predicted operating earnings of $8,573.50 per Class A share.
Berkshire said that fewer major hurricane losses this year, compared with when Hurricane Helene hit the Southeast a year ago, helped its insurance underwriting profit jump by $1.6 billion to $2.369 billion. The company’s bottom line was also boosted by $331 million in gains on debt held in foreign currencies this year, compared to a $1.1 billion loss on those holdings a year ago.
Most of Berkshire’s other companies also did well in the quarter. However, profits at its utilities fell by nearly 9% to $1.489 billion. Berkshire also noted some weakness in its retail businesses due to economic uncertainty and lower consumer confidence. Earnings were down for Fruit of the Loom, Duracell, Forest River RVs, and the toymaker Jazwares, known for its popular Squishmallows.
Berkshire’s revenue only grew about 2% to $94.972 billion during the quarter, as some of its businesses performed better than others.
