Berkshire Hathaway, led by CEO Warren Buffett, has announced a surge in operating earnings of 40% to a record $10.8 billion after taxes in the third quarter. This impressive figure has exceeded Wall Street estimates on a per-share basis.
Strong Performance in Insurance and Investments
The conglomerate witnessed a substantial increase in insurance underwriting profits and investment income on its substantial cash holdings. This marks a significant milestone for Berkshire Hathaway as it surpasses its previous peak operating profits of $10 billion in the second quarter.
Railroad and Utility Businesses Report Lower Earnings
However, it is worth noting that Berkshire Hathaway had lower earnings in its railroad and utility businesses, which impacted the overall results.
Paper Investment Losses Affect Bottom Line
The company's overall results, which include paper investment gains and losses, show an after-tax loss of $12.8 billion. This significant loss is primarily attributed to the decline in the stock market during the third quarter, and notably, a 12% decline in Apple (AAPL) shares, which account for nearly half of Berkshire's equity portfolio.
Focus on Operating Earnings
Buffett emphasizes that investors should focus on Berkshire's operating earnings, excluding unrealized gains or losses on the equity portfolio. This metric provides a clearer picture of how the company's various businesses are performing.
Share Repurchases Indicator of Stock Value
Berkshire bought back $1.1 billion of stock in the third quarter, indicating that Buffett does not believe the stock is particularly cheap. Investors closely monitor these share repurchases as a key indicator of Buffett's views on stock value.
Stock Performance and Expectations
Berkshire's Class A shares rose by 0.7% to $533,815 on Friday. Year-to-date, the shares have increased by 14%, slightly trailing behind the performance of the S&P 500 index.
Impressive Earnings Per Share
Berkshire's after-tax operating earnings per Class A share soared by 42% in the third quarter to approximately $7,436 per share. This exceeded expectations and easily surpassed the FactSet consensus estimate of $6,540 per share.
Strong Cash Position
At the end of the third quarter, Berkshire had a record $157 billion in cash and investments, up from $147 billion at the end of June. The company currently parks most of its cash in U.S. Treasury bills, which currently yield over 5%.