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Berkshire Hathaway announced a third quarter profit increase as Warren Buffett’s company began to roll out the billions of dollars it had racked up over the past decades.
The conglomerate which owns insurers such as Geico, fast food chain Dairy Queen and railroad giant BNSF announced an 82% increase in profits from a year ago to $ 30 billion for the quarter, or $ 18,994 for each of the Company’s Class A shares.
The increase in earnings is due to Berkshire’s investment portfolio, which includes significant holdings in Apple, American Express and Bank of America. It swelled by $ 25 billion for the period as the US stock market continued to recover.
A modest increase in profits from its rail, utilities and energy businesses offset a net loss in its insurance business that reduced operating profits by a third to $ 5.5 billion .
Berkshire also spent $ 9 billion on share buybacks for the period, setting a new quarterly share buyback record after easily eclipsing the $ 5.1 billion spent in the second quarter. The buybacks did little to change the company’s huge cash flow, which edged down from a record $ 146.6 billion in the second quarter to $ 145.7 billion.
“We’re thrilled to see this level of buybacks – it was frustrating to watch them build up and increase cash flow,” said Jim Shanahan, analyst at Edward Jones. “It had become such a huge number. “
Berkshire bought $ 2.4 billion of its own shares in October, based on a decline in the company’s stock count calculated by Mr Shanahan.
The surge in buybacks could help temper investors worried about falling operating profits, especially Berkshire’s insurance business, said Cathy Seifert, an analyst who covers the company for CFRA Research.
Berkshire reported a loss of $ 218 million in insurance underwriting for the quarter, down from a profit of $ 440 million a year ago. Geico’s profits fell by a quarter to $ 276 million as the company – alongside other auto insurers – handed money back to customers in the form of “insured dividends” that reflect lower accidents car with fewer drivers on the road during the pandemic.
“Geico’s results are lagging behind some of their leading peers,” Ms. Seifert said. “A number of Geico’s competitors continued to generate revenue growth and operating profit growth despite these policyholder participations, as their underlying profitability continued to be aided by the fact that people weren’t driving, so the complaints were lower. “
Mr Buffett has shown that his negotiating good faith remains intact in recent months, having gone years without concluding one of the mega-deals he is known for.
Berkshire closed its $ 8 billion buyout of Dominion Energy’s natural gas transportation and storage business in early November. In August, he placed a $ 6 billion bet on Japan’s five largest trading houses, including Mitsubishi Corp and Sumitomo Corp.
The company also invested in the initial public offering of cloud-based database company Snowflake, a bet led by Todd Combs, one of Mr Buffett’s main lieutenants.
However, investors failed to reward its sprawling conglomerate. Berkshire shares have fallen 7.6% year-to-date, behind the S&P 500 by more than 18 percentage points. This is one of the company’s worst years against the benchmark since the financial crisis, although Berkshire is well ahead of the overall insurance industry.