No. of Recommendations: 53
My summary of the 3Q ;-)
Berkshire Hathaway-BRKB reported the company’s net worth during the first nine months of 2024 increased by 12%, or $67.8 billion, to $629.1 billion with book value equal to about $437,581 per Class A share as of 9/30/24. Berkshire boasts the largest shareholders’ equity of any U.S. company.
On a GAAP basis, Berkshire reported net earnings of $26.3 billion during the third quarter compared to a loss of $12.8 billion in the prior year quarter. Investment gains and losses from changes in the market prices of Berkshire’s substantial equity investments will produce significant volatility in earnings. Berkshire’s five major equity investment holdings which represent about 70% of total equities held, include American Express at $41.1 billion (which charged 45% higher during the first nine months of the year or $12.7 billion); Apple at $69.9 billion (which Buffett continued to pare back by selling 100 million shares in the third quarter and sliced the position by two-thirds since year end); Bank of America at $31.7 billion (which Buffett continues to make withdrawals from and was $3.1 billion lower than year end); Coca-Cola at $28.7 billion (which popped 22% higher or $5.1 billion) and Chevron at $17.5 billion (which slid 7% lower or $1.3 billion.)
During the third quarter, Berkshire’s revenues were relatively unchanged at $92.8 billion. Berkshire’s operating earnings decreased 6% during the third quarter to $10.1 billion primarily due to the company’s insurance underwriting.
During the third quarter, Berkshire’s insurance businesses generated $750 million from underwriting earnings compared to $2.4 billion in the prior year quarter with the 69% decline due primarily to estimated losses of $565 million from Hurricane Helene, increases in liabilities for prior accident years’ claims, foreign exchange headwinds and accruals in connection with a bankruptcy settlement agreement related to a non-insurance affiliate. Estimated losses from Hurricane Milton, which struck Florida in October and caused significant damage, could be between $1.3 billion and $1.5 billion and will be reflected in fourth quarter results. Insurance investment income increased 48% during the quarter to $3.7 billion, driven by higher interest income from short-term investments in U.S. Treasury Bills. The float of the insurance operations rose 3% since year end to approximately $174 billion.
Burlington Northern Santa Fe’s revenues rose 3% in the third quarter to $5.9 billion. Average revenue per car/unit declined 5.2% due to lower fuel surcharges and business mix changes, however, this was offset by an 8.3% increase in car/unit volumes in the third quarter led by 17% growth in consumer products volume and 15% growth in agricultural products volume. Net earnings chugged 13% higher to $1.4 billion during the quarter due to improved productivity and lower fuel and operating costs.
Berkshire Hathaway Energy reported revenues increased 0.7% during the third quarter to $7.3 billion. Net earnings more than tripled to $1.6 billion, reflecting comparative declines in litigation-related charges affecting the U.S. utilities from the wildfires and higher earnings from natural gas pipelines.
During the third quarter, Pilot’s revenues traveled 19% lower to $10.6 billion with pre-tax earnings skidding 25% lower to $217 million. The decline in revenue was attributable to lower average fuel prices and a decline in volumes from wholesale fuel and fuel marketing businesses with pre-tax earnings reflecting higher operating costs. Net income, however, rose 8% to $198 million as interest expense declined 42% in the third quarter due to reduced borrowings and lower rates as Pilot borrowed $5.7 billion from certain Berkshire insurance subsidiaries and repaid its third-party borrowings.
Berkshire’s Manufacturing businesses reported second quarter revenues increased 2.6% to $19.7 billion with operating earnings up 1.9% to $3.1 billion. The industrial products segment generated a 3% increase in revenues to $9.0 billion with operating earnings rising 4% to $1.5 billion thanks to improvements at Precision Castparts amid the higher demand for aerospace products and higher volumes and lower raw material costs at Lubrizol. The building products segment revenues increased 3% to $6.9 billion but operating earnings decreased 8% to $1.1 billion. The decline in earnings primarily reflected lower earnings from financial services at Clayton Homes due to increased insurance claims from weather events, increased loan loss provisions and higher interest expenses. The consumer products segment revenues increased 1% to $3.8 billion with operating earnings jumping 19% to $576 million. The higher revenues were generated by Forest River, Jazwares and Brooks Sports partially offset by lower revenues from Fruit of the Loom, Garan and Richline. The increase in earnings was driven by the increase in earnings from apparel and footwear, Duracell and Forest River.
Service and Retailing revenues decreased 3.7% during the quarter to $22.6 billion with pre-tax earnings decreasing 22% to $1.0 billion. The Service group revenues were relatively unchanged at $5.1 billion with pre-tax earnings down 26% to $569 million. The earnings decline reflected the impact of lower sales and price competition at TTI, a distributor of electronic components, whose earnings plummeted 48%. Excess inventory levels within supply chains contributed to lower customer demand at TTI with these conditions expected to persist over the balance of the year. The retailing group revenues were down 3% to $4.7 billion with pre-tax earnings down 26% to $308 million. Nearly all Berkshire retailers generated lower earnings in 2024 compared to 2023, reflecting challenging business conditions that contributed to reduced sales and increased operating expenses. McLane’s revenues declined 6% to $12.7 billion due to lower unit volumes primarily in the restaurant business, while earnings increased 25% to $145 million thanks to higher gross margins and lower operating expenses.
Berkshire’s balance sheet continues to reflect significant liquidity and a very strong capital base of $629.1 billion as of 9/30/24. Excluding railroad, energy and utility investments, Berkshire ended the first nine months of the year with $638.1 billion in investments allocated approximately 42.6% to equities ($271.7 billion), 2.5% to fixed-income investments ($16.0 billion), 50.2% in cash and short-term investments ($320.3 billion) and 4.7% in equity method investments ($30.1 billion), which includes 26.9% ownership of Kraft Heinz and 28.2% ownership of Occidental Petroleum.
Free cash flow declined 41% during the first nine months of the year to $12.3 billion which reflected $17.5 billion of income tax payments derived from taxable gains on sales of equity securities, including significant sales of Apple and Bank of America. Sales of equity securities produced taxable gains of $23.4 billion in the third quarter and $97.1 billion in the first nine months of 2024. During the first nine months, capital expenditures were relatively unchanged from the prior year period at $13.6 billion, which included $9.0 billion for BNSF and BHE, its railroad and utility and energy units. Berkshire expects capital expenditures for the remainder of 2024 for BNSF and BHE to approximate $3.7 billion.
During the first nine months, Berkshire paid cash of $5.8 billion to acquire equity securities and received proceeds of $133.2 billion from the sale of stocks, including the significant paring of Apple and Bank of America. Berkshire purchased a net $127.6 billion in Treasury Bills and fixed-income investments during the first nine months of the year. In January 2024, Berkshire acquired the remaining noncontrolling interests in Pilot for approximately $2.6 billion which brought Berkshire’s ownership of Pilot up to 100%.
Berkshire repurchases its shares at prices below Berkshire’s intrinsic value, as conservatively determined by Warren Buffett. During the first nine months, Berkshire repurchased $2.9 billion of its common stock. No shares were repurchased in the third quarter. Berkshire’s swelling cash hoard to a record $320 billion and lack of share repurchases signals that Buffett likely believes that many stocks, including Apple, Bank of America and Berkshire’s stock, itself, are fairly valued at current price levels.
No. of Recommendations: 8
Thank you, babyb, for your excellent summary.
No. of Recommendations: 3
If the combination of both Hurricanes turns out to only be $2 BB or less in losses, then I am pleased.
No. of Recommendations: 13
This Barron's article does an unusually good job of describing the two primary (non-forex-related) charges Berkshire took in their insurance business during the quarter. There wasn't a paywall for me. Your mileage may vary.
https://www.barrons.com/articles/berkshire-insuran...The term "new management" was used several times in the 10Q when discussing GUARD - so that had Ajit cleaning house written all over it.
Barrons accurately describes the Whittaker, Clark & Daniels bankruptcy that produced the charge at NICO as more akin to the Lloyds of London "names" deal from years ago (or the 2014 CNA retroactive deal) - NICO acquired the company (a capital shell of assets to invest and liabilities to manage) in 2007 after it had ceased operations back in 2004. This accounting charge is from a proposed final settlement but we don't really know if the deal from 2007 was good or bad unless someone asks Ajit or Warren at the AGM next year.
The foreign exchange wiggles' effect on NICO's expense line isn't really a cause for concern. Many quarters have been gains - this particular quarter the Yen strengthened quickly and (so far) briefly.
No. of Recommendations: 2
a good reminder for us when valuating Berkshire, that in insurance, the surprises are rarely good ones...but that said, the underwriting profits since the bad old days of GenRe have been incredible...Berkshire's insurance operations are world class.
No. of Recommendations: 5
Andrew Barry at Barron's does seem to understand Berkshire more that the average journalist...he had an article a while ago comparing Berkshire's PE on a look through basis to the S&P 500. And now this look into underwriting history and Q3 minor stumble is impressive.
My son sent me the recent FT article on Berkshire "Warren Buffett's Apple trade exposes Berkshire's dilemma". Essentially it was saying Berkshire can't find anything to buy and that is a problem/dilemma. I guess it is: unless there is a big market event - if that was to happen things would look very different...obviously.
Everyone gasping for air and trying to fit through the tiny exit door and calling Warren and Greg on a Sunday afternoon begging for help...no one is wishing for it, Warren's not predicting it and no one knows if and when it will happen but if it does Berkshire is prepared financially and psychologically. Patience and aggression.
And earning 5% risk free isn't that bad when you are already rich...
