Berkshire Hathaway profit fell in third quarter
Berkshire Hathaway, the conglomerate led by billionaire investor Warren E. Buffett, on Saturday reported a sharp decline in third-quarter profits, reflecting financial market turmoil as well as a slowing economic recovery in the United States with a peak of Covid-19 cases. Profits fell by a third to $ 10 billion, from $ 30 billion in the same three months of 2020, when the economy was still reopening after pandemic shutdowns.
Berkshire’s bottom line was pulled down by its giant investment portfolio, which fell 85% from a year ago. But earnings from Berkshire’s operating businesses, which include a railroad as well as a variety of manufacturing and retail businesses that mirror the wider U.S. economy, were also disappointing. Revenues there are only 18% higher than a year ago. That was much less than the 40% jump some analysts had predicted, and slower than the 21% increase in profits for these operating companies in the second quarter.
In addition, Berkshire recorded nearly $ 800 million in insurance underwriting losses as claims from inclement weather, including Hurricane Ida, rose. And while premium income for its popular car brand Geico increased in the quarter, its accident claims losses rose further as drivers hit the road again. He also noted that average claims were higher due to “the increase in valuation of used vehicles”.
In its rail business, Berkshire said shipping volumes rose 4.4% in the third quarter, showing continued growth in the economy. But fuel costs have risen nearly 80 percent, slashing profits.
Overall, Berkshire said its business was affected by “ongoing disruptions in the global supply chain” as well as rising commodity prices. “While consumer demand for the products has remained high, third quarter 2021 profits have been sequentially lower than second quarter earnings,” Berkshire wrote in its file. “Several of our businesses have experienced increased costs for materials, freight and other inputs due to ongoing disruptions in global supply chains.”
As expected, Berkshire’s results showed that it did not make any significant acquisitions in the third quarter. Mr Buffett was pressured to do something with his conglomerate’s growing cash reserves, which by the end of the third quarter had reached just over $ 149 billion, more than at any time in history of the company. At Berkshire’s annual meeting earlier this year, Mr Buffett said a boom in funding for special purpose acquisition companies, SPACS, had pushed up the price of potential deals. “Frankly, we’re not competitive with that,” Mr. Buffett said.
Berkshire’s biggest investment during the quarter was in its own stocks. Berkshire bought back $ 7.6 billion of its own shares from late June to late September. This is in addition to the $ 12.6 billion in shares that Berkshire bought in the first half of the year.
The purchases reflect Mr. Buffett’s belief that Berkshires shares, which fell slightly in the third quarter, are undervalued. They also disagree with what Mr. Buffett has previously said about share buybacks. In the past, Mr. Buffett has called share buybacks “immoral” and unfair, since executives often know more about their company’s transactions than outside shareholders. He also said buyouts can be the result of executives who are either naturally overconfident about their own company’s prospects or who wish to signal that they are confident.
Democrats, some of whom argue companies abused share buybacks to avoid taxes or pay workers more, have proposed taxing the buybacks to help pay for President Biden’s spending proposals. Earlier this week, Mr. Buffett’s longtime partner Charlie Munger told CNN he believed politicians were wrong to punish companies for buying back their shares. “I think it’s crazy,” said Mr. Munger, who describes himself as a Republican. “It’s so irrational and I think it kind of destroys the whole system, once you start tinkering from Washington.