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Berkshire Hathaway's Profit Rises, Boosted by Investment Returns

11/07/2020 | 08:56am

By Jenna Telesca

Berkshire Hathaway Inc.'s third-quarter profit rose as investments rallied, though a loss for the company's insurance underwriting pinched its operating profit.

Berkshire reported third-quarter net earnings of $30.1 billion, or $18,994 per Class A share equivalent, up from $16.5 billion, or $10,119 per Class A share equivalent, in the year-earlier period.

Operating earnings, which exclude some investment results, fell to $5.5 billion from $8.1 billion the year prior.

Warren Buffett's sprawling Omaha, Neb., conglomerate owns a large insurance business as well as railroads, utilities, manufacturers and well-known American retail brands such as Fruit of the Loom, Dairy Queen and Oscar Mayer.

The company's quarterly results were boosted by its vast investment portfolio.

An accounting-rule change in recent years has meant that Berkshire's earnings often reflect the larger performance of the stock market. Stocks rallied in the third quarter, with the S&P 500 up 8.5%.

Despite the improved bottom line, operating earnings fell at Berkshire as its insurance underwriting results swung to a loss from a profit. Several insurance companies posted their quarterly earnings this week with largely mixed results.

In some ways, the coronavirus pandemic has helped insurers as fewer miles driven has led to a significant decline in claims. Berkshire notably owns one of the largest car insurers in the country, Geico. In April, the car insurer joined many others in the industry in giving customers rebates, reporting to issue $2.5 billion in policy credits.

On the other hand, Covid-19 has upended so many parts of daily life beyond miles driven that have led to increased claims, from canceled events to travel insurance. Moreover, insurers have also felt a rush of claims thanks to hurricane season and wildfires on the West Coast.

The company, which for years shunned stock buybacks, bought back $9 billion in shares, bringing the total of stock buybacks to $16 billion for the year so far.

The 90-year-old Mr. Buffett continues to practice restraint in spending the company's large cash pile. For years he has said he is waiting for the right big deal at the right price. He has faced competition from aggressive private-equity firms.

Berkshire held $145.7 billion in cash at the end of the third quarter, down from about $146.6 billion in cash at the end of the second quarter.

"I still hold out the view that they are waiting for that big fat elephant to walk by," said David Marcus, co-founder and chief executive of Evermore Global Advisors, as Mr. Buffett calls large acquisitions. Mr. Marcus has personally held Berkshire stock since the mid-1990s.

"I just think it's a matter of time. It could happen next week or next year," he said, adding that recent big company spinoffs could create an opportunity for Berkshire.

Nevertheless, Berkshire had hardly been standing still over the last few months, investing $6 billion in five Japanese trading companies, buying Dominion Energy Inc.'s midstream energy business for $9.7 billion and disclosing a $565 million stake in gold mining company Barrick Gold Corp.

In a surprise to many investors, Berkshire put $250 million into cloud-based software company Snowflake Inc. as it went public in September. Berkshire has long been careful with its investments in technology.

Berkshire holds a vast investment portfolio, the largest of which is Apple Inc.

This summer, Berkshire dumped some of its bank stocks but added to its Bank of America holdings. The conglomerate will update its quarterly investment filings later this month.

The Bank of America investment may also have been partly about technology. Bank of America has been a leader in consumer digital engagement, said Mac Sykes, portfolio manager and member of the global research team at Gabelli Funds.

"I don't think he is abandoning the bank space. But I think he just kind of narrowed his focus on more specific institutions," he said.

Mr. Sykes said Bank of America's growing deposits, conservative lending and senior leadership also fit into Berkshire's wheelhouse.

Berkshire's Class A shares closed Friday at $313,885, down 7.6% for the year. The S&P 500 index increased 8.6% year to date.

Corrections & Amplifications

This article was corrected Nov. 9, 2020 because food brand Oscar Mayer was misspelled as Oscar Meyer in the original version. Also Dominion Energy Inc. was incorrectly identified as a midstream energy business. Dominion Energy is a broader power and energy company that sold off its midstream energy business to Berkshire Hathaway.

(END) Dow Jones Newswires

11-07-20 0856ET

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