OMAHA, Nebraska, Berkshire Hathaway said on November 7 that its third quarter operating earnings fell about 6 percent to 12.71 billion dollars, as weaker insurance results weighed on the company in its first earnings report since Warren Buffett stepped back in September and Greg Abel took over as chief executive, according to Reuters and the company release.
Operating earnings were 12.71 billion dollars, down 5.8 percent from 13.49 billion dollars a year earlier, or about 8,954 dollars per Class A share. Net earnings fell more sharply, down 28 percent to 22.11 billion dollars from 30.8 billion dollars a year earlier, as investment gains dropped to 9.4 billion dollars from 17.3 billion dollars. Revenue rose 11 percent to 105.65 billion dollars, which showed that the fall in profit came from earnings mix and investment results, not from a fall in sales across the group.
Insurance was the main drag inside the operating business. Insurance profit fell 26 percent in the quarter. Underwriting profit fell 43 percent to about 1.35 billion dollars, and insurance investment income fell 14 percent to 2.73 billion dollars. GEICO, the car insurer that is one of Berkshire’s best known businesses, reported a 45 percent fall in pretax profit. Those figures point to a harder period for claims and underwriting, even as other parts of the large group, which spans rail, energy, manufacturing and retail, helped lift total revenue.
Share buybacks rose sharply at the same time. Berkshire repurchased 9.6 billion dollars of its own stock in the third quarter, and bought about 2 billion dollars more in October, after 4.8 billion dollars of buybacks earlier in the year. Buybacks return cash to shareholders by reducing the number of shares in the market. The size of the purchases suggests the new leadership sees value in the company’s own shares and is willing to use a large part of its cash flow to buy them when it judges the price to be right.
The report is the first since the September 18 succession, when Buffett stepped back from the chief executive role and Abel became chief executive. For the first nine months of the year, operating earnings rose 8 percent to 37.0 billion dollars, a figure that gives a steadier view than one quarter alone. Berkshire itself warns investors that quarterly investment gains and losses are usually meaningless for judging the business, because market swings can make net earnings jump or fall even when the operating companies change little.
Why it matters goes beyond one company. Berkshire is watched as a broad read on the American economy because it owns businesses in insurance, freight, energy and consumer goods, and because generations of investors have followed its results for signals on value and risk. A fall in insurance profit matters for the wider sector, and the larger buybacks matter for shareholders who are judging how Abel will use Berkshire’s resources in his first months in charge.
What happens next will depend on whether insurance results recover and whether buybacks stay at this pace. Investors will also look for more detail from Abel on capital plans and on how he intends to run a group built over decades by Buffett. The next test is simple, whether operating earnings can return to growth in the final quarter while the company keeps its careful approach to prices, risk and large purchases.
Sources: Berkshire Hathaway company release via berkshirehathaway.com, with reporting by Reuters.
