Berkshire Hathaway Inc. spent about $9.6 billion to buy back its own shares in the third quarter, a sign the company's executives viewed the stock as undervalued. But declining insurance underwriting weighed on its operating earnings in a mixed quarter for the company.
The Omaha, Nebraska-based conglomerate's operating earnings fell to $12.7 billion in the third quarter, a 5.8% decline from a year earlier, it said Saturday in a statement. Insurance underwriting declined by 43%, as its auto insurer Geico faced an increase in losses and a surge in underwriting expenses over the period. The firm's insurance net investment income also declined 14% to $2.7 billion, largely because of lower short-term interest rates.
The slump in underwriting earnings despite a lack of significant catastrophe events for Berkshire during the quarter is “a pretty significant deterioration,” said Cathy Seifert, an analyst for CFRA Research. Investors “should take a look at this because it's a core profit generator; it's a core float generator.”
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Berkshire started buying back its own shares in the first quarter for the first time in more than a year, as Chief Executive Officer Greg Abel found the shares were trading below their “intrinsic value.”
Shares of Berkshire fell roughly 1% in the first nine months of the year, underperforming the S&P 500 — a gauge Warren Buffett often used to highlight the company's performance. Since then, the stock has reached new heights, prompting questions over whether the firm would continue such buybacks. Its A share class has gained nearly 15% since then, versus a nearly 4% decline for the index.
Despite the buybacks, the firm's cash pile rose from the previous quarter, totaling $377.4 billion at the end of September. After deducting $20.5 billion in unsettled US treasury bill purchases, the firm's cash stands at about $357 billion. Berkshire sold a net $426 million of equity holdings in the period.
“Valuations of equities probably were less attractive to Abel in the third quarter,” Bloomberg Intelligence analyst Matthew Palazola said.
Berkshire's earnings are typically closely watched because its stable of businesses — ranging from insurance to railroads to energy and manufacturing — provide a snapshot of the health of the US economy.
New Bets
The new CEO, who was praised by investors after his first appearance leading the firm's annual meeting in May, has been putting his mark on the conglomerate.
In recent months, Abel pushed the firm into artificial intelligence investments, a new wager that's getting an immediate reality check as the sector confronts a growing backlash against data centers and wild swings in stock and bond prices. Abel likely views Berkshire's AI investments as a long-term wager on the technology's potential, Keefe, Bruyette & Woods analyst Meyer Shields told Bloomberg in an earlier interview.
Over the past few months, Abel spent $6.8 billion to buy homebuilder Taylor Morrison Home Corp., a typical value bet, while also handing $10 billion to Google parent Alphabet Inc. to support its investments related to AI. He also invested $930 million in Bending Spoons SpA, an Italian conglomerate that acquires established businesses and uses technology to transform them.
At railroad unit BNSF, the average revenue per car increased 10.5%, driven in part by higher fuel surcharge revenue. That helped boost the unit's profit by 19.3%, providing a boost to CEO Katie Farmer, who's been seeking to improve profitability and close the gap with the company's most efficient peers.
Berkshire Hathaway Energy posted an 8.3% gain in earnings to $1.6 billion over the period, boosted by higher utilities sales volumes and customer rates in certain territories.
That unit, which collected roughly a third of its earnings from tax credits including some related to wind-powered electricity generation, may also benefit from the Democrats' recent win during the midterm elections, Palazola said.
“Under Republican administrations, it seemed like those might fade away over time, but should we have Democrats staying in power for longer, that's actually a benefit for this business,” he said.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
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