Warren Buffett’s firm saw a 17% boost in profits, attributed to a milder hurricane season and increased paper investment returns this year, as Berkshire Hathaway gears up for the iconic 95-year-old investor to step down. The CEO was appointed in January.
TL;DR
- Berkshire Hathaway profits surged 17% due to milder hurricanes and better investment returns.
- Greg Abel will take over as CEO in January, with Warren Buffett remaining chairman.
- Berkshire Hathaway's stock is down from its high, and no shares were repurchased this quarter.
- Investors anticipate changes under Abel, but immediate shifts are unlikely with Buffett as chairman.
Despite being Berkshire's largest acquisition in years, last month's $9.7 billion investment at OxyChem won't significantly reduce the $381.7 billion in cash the company held at the close of September.
The primary concern for most investors currently is that Buffett Vice Chair Greg Abel is slated to take over as CEO in January, though Buffett will remain chairman at Berkshire. Class A shares are significantly down from their high of $812,855, a price reached shortly before Buffett's announcement at the May annual meeting that he intends to step aside. Berkshire Hathaway's stock closed at $715,740 on Friday, yet the company did not repurchase any of its shares during the quarter, indicating Buffett's belief that the stock remains overvalued.
CFRA Research analyst Cathy Seifert anticipates investors will eagerly seek further information from Berkshire once Abel assumes leadership, and that there will be increasing pressure for the company to initiate a dividend if it's unable to. Discover more effective ways to spend that money. However, as Buffett continues to serve as chairman, immediate shifts are unlikely.
“The lack of discussion and disclosure — I think has a lot of the investment community frustrated,” Seifert said. Berkshire Hathaway has consistently eschewed the establishment of public or investor relations departments, and it also foregoes the quarterly investor calls that are standard practice for virtually all publicly traded corporations. Buffett has consistently stated his preference for releasing results to all investors simultaneously on Saturdays, allowing them the weekend to process the information before market trading resumes.
Edward Jones analyst Jim Shanahan said he’s excited to see what changes Abel might make after he becomes CEO and whether he will assemble a team of executives around him to help manage the various businesses and decide Where to place Berkshire's funds. Shareholders may not get details on Abel's strategies until his initial letter to them in late February or at the May annual meeting.
“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 already been managing all of Berkshire’s noninsurance businesses since 2018, and the CEOs who report to him say they’ve been impressed by his business acumen, sharp advice, and availability to help when they have questions.
Berkshire announced Saturday its quarterly earnings of $30.796 billion, which equates to $21,413 per Class A share. This represents an increase from last year's $26.251 billion, which equated to $18,272 for each A share.
However, the final profit numbers are consistently skewed by the present valuation of Berkshire's substantial investment holdings and any stock divestitures, which contributed $17.3 billion to the company's earnings this year.
Buffett has consistently advised investors to focus more on Berkshire's operating earnings to gauge the performance of its numerous businesses, such as prominent insurers like Geico. BNSF railway, numerous large utility providers, and a variety of industrial and commercial businesses.
Berkshire's operating profit surged to $13.485 billion, or $9376.15 per Class A share, on that metric, driven by a robust recovery in its insurance operations. Last year, Berkshire's operating earnings were $10.09 billion, amounting to $7,023.01 for Each Class A share.
FactSet Research's survey of four analysts indicated that Berkshire is expected to announce operating earnings of $8,573.50 for Each Class A share.
Berkshire reported a significant increase in its insurance underwriting profit, rising to between $1.6 billion and $2.369 billion. This improvement was attributed, in part, to a reduction in severe hurricane-related losses this year, contrasting with the impact of Hurricane Helene on the southeast in the previous year. The company's financial performance was also boosted by $331 million in profits from foreign currency-denominated debt this year, a significant improvement from the $1.1 billion loss recorded on similar holdings in the previous year.
While most of Berkshire's other businesses saw strong performance during the quarter, profits at its utilities decreased by almost 9%, reaching $1.489 billion. Berkshire also noted some softness in its retail operations due to the Economic instability and diminished consumer trust. Fruit of the Loom, Duracell, Forest River RVs, and Jazwares, the company behind the popular plush Squishmallows, all saw a decline in earnings during the quarter.
Berkshire reported that its revenue saw a modest increase of approximately 2%, reaching $94.972 billion for the quarter, reflecting varied performance across its various business segments.