Buffett’s firm suffers $12.8B loss, insurers excel.
Warren Buffett’s Company Reports $13 Billion Loss in Q3
In a surprising turn of events, Warren Buffett’s company, Berkshire Hathaway, has reported a staggering loss of nearly $13 billion in the third quarter. However, despite this setback, the company’s owned businesses, particularly the insurers, have performed remarkably well.
According to Berkshire Hathaway’s statement released on Saturday, the company incurred a loss of $12.8 billion, equivalent to $8,824 per Class A share, in the quarter. This loss is significantly larger than the $2.8 billion loss reported a year ago.
It’s important to note that most of these losses are unrealized, as Berkshire Hathaway did not sell the majority of its stocks. The company’s largest holding, a massive stake in Apple, remains intact. Accounting rules require Berkshire Hathaway to include the value of its investments, which stood at $341.1 billion at the end of the quarter, in its earnings report. Last quarter, the stock portfolio was valued at $353 billion.
Warren Buffett has always emphasized that investors should focus on Berkshire’s operating earnings, which exclude the fluctuating value of investments. By this measure, the company’s operating profit has actually increased by nearly 41 percent to $10.8 billion, or $7,437.15 per Class A share, compared to $7.65 billion, or $5,215.60 per Class A share, a year ago.
Analysts surveyed by FactSet Research had expected Berkshire to report operating earnings per share of $6,540.23 on average, making the actual results even more impressive.
Strong Performance from Berkshire’s Insurers
Berkshire’s insurance unit has been a bright spot, benefiting from relatively low losses related to major catastrophes such as hurricanes this year. Additionally, Geico’s profits have rebounded, contributing to the company’s operating profit with a total of $2.4 billion. In contrast, the insurers reported a $1.1 billion loss in the third quarter of the previous year.
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In addition to its insurers, Berkshire Hathaway owns a diverse range of businesses, including BNSF railroad, major utilities, and various manufacturing and retail firms such as Precision Castparts, See’s Candy, Dairy Queen, and Helzberg Diamonds.
While profits at the railroad declined to $1.2 billion from last year’s $1.4 billion, the biggest drop in volume came from consumer products, with BNSF hauling nearly 5 percent fewer shipments.
The utility unit’s contribution to Berkshire’s operating profit decreased to $498 million from $1.6 billion a year ago, primarily due to a 55 percent increase in operating expenses, which reached $3.7 billion. The significant rise in expenses was driven by a $1.3 billion loss related to wildfires at the PacifiCorp unit.
Despite the loss, Berkshire did repurchase $1.1 billion of its own stock in the quarter. However, the pace of buybacks has slowed down compared to the first quarter, when $4.4 billion of Berkshire shares were bought. Warren Buffett only engages in buybacks when he believes the shares are undervalued.
Warren Buffett continues to hold a substantial amount of cash, as he has not made any major investments or acquisitions this year. At the end of the quarter, Berkshire had $157.2 billion in cash, up from $147.4 billion in the previous quarter.
By Josh Funk
What is a wildfire score in insurance?
FireLine is a wildfire risk management tool using advanced remote sensing, machine learning, and digital mapping technology to determine the impact of the three factors that contribute to the wildfire risk. Scores range from negligible (0) to low (1), moderate (2-3), high (4-12), and extreme (13- As hurricanes and wildfires. In fact, the insurance underwriting profit for the quarter came in at $441 million, compared to a loss of $1.1 billion in the same period last year.
One of the key contributors to this strong performance is Geico, Berkshire Hathaway’s auto insurer. Geico reported a 6% increase in premiums written during the quarter. Additionally, its combined ratio, which measures profitability in the insurance industry, improved to 93.7% from 98.9% a year ago.
Another insurer under Berkshire’s umbrella, Berkshire Hathaway Reinsurance Group, also fared well. The unit reported an underwriting profit of $440 million for the quarter, up from $289 million a year ago. This positive result was driven primarily by a decrease in losses from catastrophes.
Investment Gains Offset by Unrealized Losses
While the company’s owned businesses performed admirably, Berkshire Hathaway’s investment portfolio suffered notable losses. The value of the company’s stocks, bonds, and other investments decreased by $17.4 billion during the quarter.
This decline was primarily driven by unrealized losses on the portfolio’s stocks, which amounted to $25 billion in Q3. However, it’s crucial to understand that unrealized losses do not reflect the actual financial health of the company.
In Warren Buffett’s annual letter to shareholders, he famously stated, “In the short-term, the stock market is a voting machine, but in the long-term, it is a weighing machine.” This quote reflects Buffett’s emphasis on long-term value and his belief that short-term market fluctuations should not overshadow the underlying performance of the business.
Continued Long-Term Perspective
Despite the substantial losses in the investment portfolio, Warren Buffett and his team at Berkshire Hathaway remain steadfast in their long-term strategy. The company has a strong track record of investing in quality businesses and generating significant returns over time.
Buffett has consistently urged investors to focus on operating earnings, which continue to show positive growth. Furthermore, Berkshire’s insurance businesses have demonstrated resilience and profitability, even in the face of challenging circumstances.
As the famous investor himself once said, “Our favorite holding period is forever.” Buffett’s wise words remind us that short-term setbacks should not deter us from considering the long-term potential of a company.
Overall, while Warren Buffett’s company may have reported a significant loss in Q3, the underlying performance of Berkshire Hathaway’s owned businesses remains strong. The insurance unit has delivered impressive results, and the company’s long-term strategy continues to be guided by its focus on quality investments and sustainable growth.
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