Buffett’s Cash Soars to Record as Operating Profit Edges Higher

(Bloomberg) -- Warren Buffett is sitting on more cash than ever.

His Berkshire Hathaway Inc. had almost $85 billion on its books as of Sept. 30, according to a regulatory filing late Friday. That's up from the previous record of $72.7 billion on June 30.

“He's got a lot of ammo” for investments, said Bill Smead, who oversees about $2.1 billion including Berkshire shares at Smead Capital Management. “Eighty-five billion dollars is a lot of money.”

The cash balance is likely to spark a fresh round of speculation about what the 86-year-old Berkshire chairman and chief executive officer will buy next. Over the past five decades, he's built the Omaha, Nebraska-based company into a sprawling conglomerate through dozens of acquisitions and stock picks. It now has an equity portfolio valued at about $100 billion and subsidiaries that range from Dairy Queen to NetJets.

Operating earnings climbed 6.6 percent in the third quarter to $4.85 billion, or $2,951 a share, driven by contributions from manufacturing businesses. That missed the average $3,058-a-share estimate of three analysts surveyed by Bloomberg. Net income fell 24 percent from a year earlier when Buffett booked a large gain on an investment in Kraft Heinz Co.

This year, he's added to his company's stable of subsidiaries, buying battery-maker Duracell and Precision Castparts Corp., a global supplier to the aerospace industry. The latter was one of his biggest acquisitions ever.

Those two businesses pushed profit at the manufacturing, service and retail segment up 45 percent to $1.7 billion in the quarter. Aggregate earnings fell for the rest of the companies in the group, including chemical unit Lubrizol and toolmaker Iscar, according to the filing.

Geico, BNSF

Some of Berkshire's other large businesses also struggled in the quarter. The insurance group reported that underwriting profit slipped 34 percent to $272 million as results worsened at the company's namesake reinsurance business and auto insurer Geico. Income from Berkshire's railroad, BNSF, fell about 12 percent to $1.02 billion on reduced demand for coal and petroleum products.

One bright spot was the utility unit, Berkshire Hathaway Energy. It contributed $932 million in profit, compared with $786 million a year earlier, on higher electric rates and increased wholesale volumes. The business operates electric grids in the U.K., natural gas pipelines that stretch from the Great Lakes to Texas and power companies in states including Iowa and Nevada.

Part of the increase in cash during the quarter came from the sale of preferred stock in chewing-gum maker Wrigley. The transaction was completed in late September and drove a gain of $2.35 billion on derivatives and investments. A year earlier, Berkshire recorded a gain of $4.88 billion in that area because of an increase in the value of its investment in Kraft Heinz.

Reinsurance Risk

Berkshire has said such marks are “often meaningless” and don't help in understanding the company's performance. Nonetheless, they were responsible for the drop in net income, which declined to $7.2 billion in the third quarter from $9.43 billion a year earlier.

Not all the $84.8 billion in cash at Berkshire is available for investments. Buffett has said that he wants to keep a cushion of at least $20 billion. His company is a major seller of reinsurance, a business that requires large payouts after natural disasters and other catastrophic events.

One of the best ways for Buffett to deploy the cash pile could be to purchase his company's stock, said Jim Shanahan, an analyst at Edward Jones. Buffett is authorized to buy back shares for less than 120 percent of book value, but the company could adjust that limit.

As of Sept. 30, book value stood at $163,783 per share. Berkshire's Class A stock closed Friday at $214,545, or about 31 percent more than the measure of assets minus liabilities.

Even at that level, the stock “seems really cheap to me,” Shanahan said. “There's a lot of upside here in terms of earnings.”

--With assistance from Katherine Chiglinsky To contact the reporter on this story: Noah Buhayar in Seattle at nbuhayar@bloomberg.net. To contact the editors responsible for this story: Dan Kraut at dkraut2@bloomberg.net, Dan Reichl