Warren Buffett's Berkshire Hathaway profit soars to US$30b on back of investment portfolio

Berkshire Hathaway CEO Warren Buffett. Photo / AP

Warren Buffett's conglomerate reported an 82 per cent jump in its third-quarter profit as the value of its investment portfolio soared, but Berkshire Hathaway said the coronavirus pandemic continued to hurt its assorted businesses, such as BNSF railroad.

Berkshire said Saturday that it earned US$30.1 billion ($44.4b), or US$18,994 per Class A share, during the quarter. That's up from US$16.5b, or US$10,119 per Class A share, a year ago. Most of the gains were due to a US$24.8b improvement in the estimated value of Berkshire's investments, which include large stakes in Apple and Bank of America.

Buffett maintains that Berkshire's operating earnings offer a better view of quarterly performance because they exclude investments and derivatives, which can vary widely. By that measure, Berkshire's operating earnings declined by 32 per cent, to US$5.49b, or US$3,452.45 per Class A share. That's down from US$8.07b, or US$4,943.04 per Class A share, a year earlier.

The four analysts surveyed by FactSet expected Berkshire to report operating earnings per Class A share of US$3,587.63.

Berkshire said its revenue slipped by 3 per cent in the quarter, to US$63.02b. Edward Jones analyst Jim Shanahan said it was impressive to see Berkshire's revenue remain close to last year's level given all the challenges in the overall economy.

"I think you'd struggle to find many, if any, companies that are reporting only modest declines in revenues," Shanahan said.

BNSF said profit fell by 8 per cent, to US$1.35b, at the railroad as the coronavirus continued to slow freight traffic. Berkshire said the railroad delivered 8 per cent less freight during the quarter, which is better than the second quarter, when volume fell by 18 per cent at the height of the virus-related business shutdowns, but still significantly lower than last year.

Berkshire's utility unit was a bright spot in the report with US$1.395bin profits, up 18 per cent from last year. The utilities were helped by higher tax credits for wind energy and other renewable power projects coming online.

Berkshire said its Precision Castparts aircraft parts manufacturing company continued to struggle with the pandemic's impact on aviation, as it reported an 80 per cent drop in its pretax earnings. Precision, which took a US$10b writedown in the second quarter, said it expected to cut 40 per cent of its workforce by the end of the year.

Berkshire said it spent US$9b repurchasing its own shares during the third quarter, which is nearly double the record US$5.1b it spent buying its own stock in the second quarter. But even after the repurchases and a handful of investments Berkshire made during the quarter, the company still held US$145.7b in cash and short-term investments at the end of the third quarter.

Berkshire continued to hold a massive amount of cash despite buying roughly US$2.1b in Bank of America stock during the summer and agreeing to pay US$4b for Dominion Energy's natural gas pipeline and storage business. Berkshire didn't close on the first part of the Dominion deal until earlier this month.

Berkshire also said in August that it had taken stakes of just over 5 per cent in five major Japanese trading houses, but that roughly US$6b investment was made gradually over the previous year so it also didn't have a big impact on Berkshire's cash in the third quarter.

Berkshire owns more than 90 companies, including Geico insurance and utility, furniture, manufacturing and jewelry businesses. The Omaha, Nebraska-based conglomerate also has major investments in such companies as American Express, Moody's and Coca-Cola.

- AP