Berkshire’s Operating Earnings Fell 6%. Buybacks Hit $9.6B.

Greg Abel, CEO of Berkshire Hathaway. (David Paul Morris/Bloomberg)

Berkshire Hathaway’s operating earnings fell 6% to $12.7 billion after taxes in the third quarter, depressed by weaker underwriting and investment income at the company’s large insurance units.

Those declines were partly offset by higher profits at the conglomerate’s railroad, utility, manufacturing, and service businesses. The overall earnings figure is in line with the consensus estimate.

In its earnings release Saturday, the company disclosed that it repurchased $9.6 billion of stock in the period, compared with $4.5 billion in the second quarter and probably its highest quarterly figure ever.

The buyback figure is above expectations and indicates that Berkshire CEO Greg Abel and controlling shareholder Warren Buffett felt the stock was inexpensive in the period.

There was a clue to the elevated buybacks in the third quarter, when the company repurchased about $3.4 billion of stock in July—a figure based on share-count figures from Berkshire’s second-quarter 10-Q.

Berkshire continued to repurchase stock in October, buying back about $2 billion of shares, Barron’s estimates, based on the share count information as of Oct. 28 disclosed in the 10-Q.

The pace of buybacks slowed in October as the stock price rose above $800,000 a share. Berkshire is price sensitive in its buybacks.

The heavy repurchases in the third quarter may cheer many investors who have wanted the company to get more aggressive with buybacks.

Shares have been on a roll for more than a month, rising 15% since the end of the third quarter and hitting new highs in the past week. The gains reflect in part the company’s defensive characteristics in a more rocky environment for many AI-related stocks.

The Class A shares ended Friday at $856,612 and the Class B shares at $570.89. Both classes are up about 13.5% so far this year.

Book value rose about 2% sequentially in the third quarter to about $534,000 per class A share, Barron’s estimates. The stock now trades for about 1.6 times that book value estimate, at the higher end of the range in recent years.

The third-quarter operating earnings were affected by currency swings related to Berkshire’s yen-related borrowings. There was a currency loss of $343 million, relative to a $331 million gain in the year-earlier period.

Excluding the currency swing, operating earnings were down less than 1% year over year to $13 billion, Barron’s calculates. Many investors and analysts strip out the currency swings because they are one-time in nature and stem from a quarterly revaluation of Berkshire’s yen borrowings of about $15 billion.

Operating earnings per Class A shares were $8,910, Barron’s estimates. That is in line with the FactSet consensus of $8,821 and down about 5% year over year.

Cash and equivalents, including Treasury bills, totaled $352 billion at the end of September, excluding cash held at the company’s railroad and utility businesses. That compares with $360 billion on June 30.

The $352 billion figure takes into account some $20 billion of Treasuries that Berkshire bought at the end of the quarter but hadn’t settled yet. The lower cash figure reflects the acquisition of home builder Taylor Morrison for almost $7 billion in cash in July and the heavy stock repurchase activity.

Buffett focuses on the cash total excluding the railroad and utility cash since that is what’s available for deployment into investments.

The 10-Q indicates that Berkshire was a light buyer of equities, purchasing about $2 billion of stocks in the period, including some $600 million Bending Spoons stock, and selling about $3 billion of stock. The Bending Spoons purchase was disclosed by the tech company.

That compares with net equity purchases of $20 billion in the second quarter, when Berkshire added more than $10 billion to its stake in Alphabet.

The pace of buybacks appears to have slowed in October as the stock price rose above $800,000 a share. Berkshire is price sensitive in its buybacks.

Looking at operating performance, insurance underwriting was down more than 40% to $1.35 billion after taxes in the third quarter, depressed by a more than 40% drop in underwriting profit at the company’s Geico auto insurance unit.

Geico, one of the leading U.S. auto insurers, is operating in a much more competitive market than a year ago. Berkshire’s reinsurance profits also were lower.

Earnings at the BNSF railroad were up 19% after taxes to $1.7 billion, a strong performance for a business that has been a focus for CEO Abel. BNSF’s profit margins have been below those of most of its major peers and Abel has aimed to boost those margins.

Profits at Berkshire’s utility business rose 8% to $1.6 billion after taxes and earnings at its sprawling manufacturing, service, and retailing group of businesses, which includes Precision Castparts and Lubrizol, gained about 12% to $4 billion.

Write to Andrew Bary at andrew.bary@barrons.com

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