TLDR
- Berkshire Hathaway’s cash stockpile climbed to a record $381.7 billion in the third quarter, up from $277 billion last year
- Third-quarter operating profit jumped 34% to $13.49 billion, exceeding analyst forecasts due to strong insurance results
- Warren Buffett will step down as CEO in December after six decades, with Greg Abel set to replace him
- Berkshire continued selling stocks for a 12th consecutive quarter while avoiding share repurchases for the fifth straight quarter
- Stock performance has lagged since retirement news, falling 12% and trailing the S&P 500 by 32 points since May
Berkshire Hathaway delivered solid third-quarter results while accumulating cash at an unprecedented rate. The company’s cash position hit $381.7 billion, setting a new record.
Operating profit rose 34% to $13.49 billion. This beat Wall Street forecasts. Net income increased 17% to $30.8 billion for the quarter.
Warren Buffett will exit as CEO when the year ends. His 60-year tenure concludes in December. Greg Abel, the 63-year-old vice chairman, takes over as chief executive.
Berkshire Hathaway Inc., BRK-B
Berkshire sold more equities than it purchased for the 12th straight quarter. The equity portfolio stands at $283.2 billion. Holdings include major positions in Apple and American Express.
The company skipped stock buybacks again in Q3. This marks five consecutive quarters without repurchases. Revenue grew only 2%, falling short of broader economic expansion.
Consumer businesses faced headwinds during the quarter. Clayton Homes reported stalled growth. Duracell, Fruit of the Loom, and Jazwares all experienced declining revenue as consumer confidence weakened.
Insurance Segment Leads Performance
Insurance operations provided the profit boost. Underwriting income surged to $2.37 billion from $750 million in the prior year. The absence of major hurricanes helped results.
Geico grew premiums by 5% while ramping up spending. The auto insurer appears to be investing heavily in customer acquisition. Insurance investment income dropped 13% to $3.18 billion as rates fell.
BNSF railroad increased profit 6% thanks to lower fuel expenses. Berkshire Hathaway Energy posted a 9% profit decline due to wildfire litigation costs and higher pipeline expenses.
Currency movements contributed over 40% of the operating profit gain. The company’s insurance float reached $176 billion during the quarter.
Market Response and Future Direction
Berkshire shares have underperformed since the CEO transition announcement. The stock dropped 12% from May 3 when Buffett revealed his plans. It trails the S&P 500 by 32 percentage points over that span.
Year-to-date, Berkshire lags the index by 11 percentage points. Analysts point to investor frustration over the growing cash position. CFRA Research rates the stock “hold” due to limited near-term catalysts.
Edward Jones analysts upgraded to “buy” in September. They acknowledge Abel faces a significant opportunity with the cash resources. Some market watchers suggest Abel might introduce dividends for the first time since 1967.
Abel’s Challenge
Berkshire announced plans to acquire Occidental Petroleum’s OxyChem division for $9.7 billion. The October 2 deal represents a rare deployment of capital. The company hasn’t completed a major acquisition since purchasing Precision Castparts for $32.1 billion in 2016.
Berkshire controls nearly 200 operating companies. The portfolio spans insurance, railroads, utilities, and consumer brands like Dairy Queen and See’s Candies. Abel is viewed as a more active operator than Buffett.
What Abel does with the massive cash reserve remains uncertain. Options include large acquisitions, increased investment in existing operations, or shareholder returns. The new CEO inherits a $1.03 trillion company with exceptional financial flexibility.
Berkshire continues assessing how recent tax legislation affects renewable energy investments. The company monitors regulatory changes as leadership transitions. Insurance float and operating business performance will be key metrics under Abel’s leadership.
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