Berkshire Hathaway, the conglomerate of billionaire Warren E. Buffett, reported a sharp drop in earnings in the third quarter on Saturday, reflecting turbulent financial markets as well as a slowdown in the U.S. economic recovery with a surge in Covid-19 cases. Profits fell a third to $ 10 billion, down from $ 30 billion in the same three months of 2020 when the economy was still in the process of reopening after pandemic shutdowns.
Berkshire’s earnings were squeezed by its huge investment portfolio, which fell 85 percent year over year. But profits from Berkshire’s operations, which include a railroad and a variety of manufacturing and retailing companies that mirror the broader US economy, also disappointed. There, the income rose compared to the previous year by only 18 percent. That was much less than the 40 percent jump some analysts predicted and slower than the 21 percent profit surge that operations had in the second quarter.
On top of that, Berkshire posted nearly $ 800 million in losses, and while popular auto brand Geico’s premium income rose in the quarter, accidental loss losses rose even more as drivers got back on the road. It also found that the average claims incidents were higher due to “increasing the valuation of used vehicles”.
In the railroad business, Berkshire said shipping volume rose 4.4 percent in the third quarter, showing the continued growth of the economy. But fuel costs rose nearly 80 percent, which detracted from profits.
Overall, Berkshire said its businesses are being affected by “ongoing global supply chain disruptions” as well as higher commodity prices. “While consumer demand for products remained high, profits in the third quarter of 2021 were sequentially lower than the second quarter,” Berkshire wrote in its filing. “Several of our businesses saw higher material, freight and other input costs due to persistent disruptions in global supply chains.”
Nov. 5, 2021, 8:11 p.m. ET
As expected, Berkshire’s results showed that there were no significant acquisitions in the third quarter. Buffett was under pressure to do something with his conglomerate’s growing cash reserves, which had grown to just over $ 149 billion by the end of the third quarter, more than ever in the company’s history. At Berkshire’s annual meeting earlier this year, Buffett said a boom in special purpose vehicle funding, SPACS, had driven the price of potential deals high. “Honestly, we’re not competitive with it,” said Buffett.
Berkshire’s largest investment in the quarter was in its own stocks. Berkshire bought back $ 7.6 billion of its own stock from late June to late September. That was on top of the $ 12.6 billion in stock Berkshire bought in the first half of the year.
The purchases reflect Buffett’s belief that Berkshire’s stocks, which had fallen slightly in the third quarter, are undervalued. They are also at odds with what Buffett said earlier about share buybacks. In the past, Buffett has sometimes referred to share buybacks as “immoral” as well as unfair, considering that executives often know more about their company’s business than outside shareholders. He also said buybacks can be the result of executives who either inherently have too much faith in their own company’s prospects or want to signal their trust.
Democrats, some of whom argue that companies have abused share buybacks to avoid taxes or pay more to workers, have proposed taxing the buybacks to pay for President Biden’s spending proposals. Earlier this week, Buffett’s longtime partner Charlie Munger told CNN that he believed politicians were misguided to punish companies for buying back their shares. “I think it’s crazy,” said Mr. Munger, who describes himself as a Republican. “It’s so irrational and I think it kind of destroys the whole system if you tinker with it from Washington.