Berkshire Hathaway’s cash pile soared to a new record of $157bn during a quarter when chief executive Warren Buffett sold stakes in publically traded companies as the Oracle of Omaha struggled to find appealing investments.
According to the results announced on Saturday, Berkshire sold US and foreign stock worth more than $5 billion in the third quarter. Berkshire has now divested nearly $40bn worth of listed shares in the last year.
Investors will have to wait two more weeks before they see Buffett’s changes in Berkshire. The company’s Saturday results filing revealed that it sold over 12mn Chevron stock before buying Hess in a $53bn all-stock transaction last month.
The value of Berkshire’s portfolio of stocks shrank from $353bn to $319bn by the end of June. This decline was fueled by the fall in the stock market, as investors began to believe that Federal Reserve would continue to keep interest rates high for longer.
This has led to a decline in the value of publically traded companies, and some portfolio managers have sought out better returns on fixed income markets. Berkshire dropped its stake in Apple by over $20bn as the shares of the iPhone maker declined 12 percent in the three-month period ending September. Fund managers and the public are keenly interested in Buffett’s investment moves to find out where he sees the best returns.
He directed that the proceeds of the stock sales and the cash flow generated by Berkshire’s various businesses be converted into Treasury bills and cash. Cash piles grew by almost $10bn during the third quarter to reach a record of $157.2bn. This gives Berkshire a powerful arsenal for acquisitions.
Berkshire is one of the biggest beneficiaries of US interest rates that have increased above 5% this year. The company revealed that its interest income on insurance investments had risen to $1.7bn during the last three months, bringing the total to $5.1bn for the past twelve months. This was more than the interest Berkshire had earned in its cash reserves over the previous three years. Jim Shanahan is an analyst with Edward Jones. He said, “Rates are attractive and it appears to create a barrier or disincentive for putting cash to work when you can earn 4% risk-free.” “I suspect that the cash balance will continue to rise from here.”
Buffett revealed that the company had repurchased Berkshire shares worth $1.1bn, down from $1.4bn during the second quarter. The filing revealed that purchases increased in August, and then again in September. This was a sign the billionaire investor thought shares were undervalued.
The operating businesses of the company, which include the BNSF Railroad, Geico Insurance and Precision Castparts aircraft parts manufacturer, saw a 41% increase in profits, to $10.8bn. Gains were fueled by the insurance unit which posted strong underwriting profits at $2.4bn. This offset weakness at BNSF as well as reserves for wildfire litigation against their utility. Ajit Jain is a Berkshire vice chair who oversees the insurance operations. He told shareholders in May at the annual meeting that the company has placed hefty bets on the Florida market for insurance and written policies there.
Jain calculated that a powerful storm could cost Berkshire up to $15bn. This year, however, the state had a relatively calm season.
Berkshire reported on Saturday that the total of significant catastrophe losses – individual insurance losses exceeding $150mn – had reached only $590mn during the first nine months. This figure is down from the $3.9bn that was lost in Florida during the same time period last year when Hurricane Ian ravaged it.
Geico, the company’s auto insurer, has shown improvement. It had been struggling to pay out claims in recent years. This unit has lost more than 2mn customers this year, and cut its advertising budget to focus on contracts that it thinks it can profit from. Berkshire earnings outside of insurance underscore the uneven growth of the economy that has confused economists and most of the investing community. The sales of the company’s apparel and shoemakers, including Fruit of the Loom and its real estate businesses, continued to decline due to the high mortgage interest rates. BNSF reported lower rail shipping volumes.
NetJets, the company’s fractional ownership of private jets, reported an increase in demand among wealthy clients. Its auto dealerships also reported higher sales.
Shanahan said, “There’s a theme emerging this earnings season: the lower-end consumers are starting to show cracks. They may not have excess liquidity and they feel the pressure of higher costs.”
Berkshire also detailed how the wildfires in 2020 and 2022 that swept through California and Oregon will continue to affect the company. The company charged $1.4bn for payments that its utility may have to make in order to compensate those who lost their home in the fire. This brings the total charges for wildfires up to $2.4bn.
Berkshire warned that its final payouts could be much higher. Plaintiffs in Oregon alone sought $8bn damages.
Berkshire’s profit report reflects the decline in the stock portfolio of the company, and this has impacted the overall results. The company reported a net loss in the amount of $12.8bn or $8,824 for each class A share. This is a significant increase from a $2.8bn loss recorded a year earlier.
Buffett has been describing net earnings as meaningless for years, claiming that the figures are “extremely misleading” to investors with little or no accounting knowledge.