|

Berkshire hathaway got a big boost from this business in Q3

Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B), the conglomerate run by Warren Buffett, was trading lower on Monday, down about 2% as of 2:30 p.m. Eastern.

The drop likely stemmed from the release of the company’s third-quarter earnings on Saturday (yes, Saturday), when it posted a net loss of $12.8 billion, or $5.88 per share.

However, if you look a little deeper into the numbers, the selloff may have been a knee-jerk reaction to what was actually a pretty good quarter. One business line in particular stood out for Berkshire Hathaway: insurance.

Net earnings down, operating income up

Berkshire Hathaway’s net loss stems from its over $350 billion investment portfolio, which sustained a nearly $24 billion net loss in the quarter and dragged down its overall net earnings. That reflects the overall performance of the market, as the S&P 500 was down 3.8% in the third quarter, while Buffett’s largest holding, Apple (NASDAQ: AAPL), which makes up some 47% of the portfolio, dropped 11% in the quarter.

It is important to note that these are unrealized losses because these investments have yet to be sold. However, it does include about $560 million in after-tax realized gains on sales of investments.

It is also worth noting that the portfolio has returned some $30 billion through the first three quarters, so you have to look past the quarterly ups and downs to the long-term track record, which has been stellar. The portfolio has had an average annual return of about 22% since Buffett has been managing it.

Importantly, Berkshire Hathaway emphasized that investors should not put much stock in the portfolio losses for the most recent quarter.

“The amount of investment gains/losses in any given quarter is usually meaningless and delivers figures for net earnings (losses) per share that can be extremely misleading to investors who have little or no knowledge of accounting rules,” Berkshire’s latest report states.

Do you know which under-the-radar stocks the top hedge funds and institutional investors are investing in right now? Click here to find out.

The more significant metric to focus on is operating earnings, which is income generated through its wholly owned businesses. Berkshire Hathaway posted a 40% year-over-year increase in operating earnings, which rose to about $10.8 billion in the quarter. That was based on a 21% year-over-year increase in revenue to $93 billion.

GEICO and insurance holdings lead the way

The firm’s earnings got a huge boost from its insurance businesses, which includes GEICO, Berkshire Hathaway Primary Group, and Berkshire Hathaway Reinsurance Group. Insurance group revenue was up 19% to $24.3 billion, while net earnings were $5.9 billion, up from just $387 million a year ago in this same quarter.

GEICO recorded $1.1 billion in net earnings, up from a net loss of $759 million a year ago, while BH Reinsurance Group had earnings of $1.4 billion in the quarter, up from a net loss of $251 million in the third quarter of 2022.

GEICO earnings climbed on a 13% decrease in underwriting expenses, and its expense ratio — underwriting expense to premiums earned — was down 1.4 percentage points to 9.3% in the third quarter. For the first nine months, the expense ratio was down 2.1 percentage points to 9.7%, stemming from a 54% reduction in advertising expenses incurred. That may seem hard to believe, given how often those commercials seem to be on, but it’s true.

For the Reinsurance group, earned premiums surged more than 42% in the quarter to $5.7 billion, offset somewhat by higher losses and underwriting expenses. Some of the other businesses were either flat or down, but the great thing about Berkshire Hathaway is that its wide array of assets and holdings allows it to perform well in various market environments.

Thus, when you look at those numbers, the quarter looks much better. Overall, Berkshire Hathaway stock is up by about 12% year to date, and this solid earnings report confirms it as a stock to strongly consider.

Author

Jacob Wolinsky

Jacob Wolinsky is the founder of ValueWalk, a popular investment site. Prior to founding ValueWalk, Jacob worked as an equity analyst for value research firm and as a freelance writer. He lives in Passaic New Jersey with his wife and four children.

More from Jacob Wolinsky
Share:

Editor's Picks

AUD/USD pulls back from monthly high but holds above 0.7000

AUD/USD retreats from the monthly high set earlier this Thursday, sliding back to 0.7000 during the Asian session as a further escalation of tensions in the Middle East undermines the risk-sensitive Aussie. However, recent hawkish comments from RBA officials could support the Australian Dollar. Furthermore, the prevailing US Dollar selling bias, despite Fed hike bets and geopolitical uncertainties, could limit losses for the pair.

USD/JPY declines to a one-week low; eyes trading range support near 157.50 on weaker USD

USD/JPY drops to a one-week low during Thursday’s Asian session, with bears now awaiting a break below multi-week range support near mid-157.00s before placing fresh bets amid a broadly weaker US Dollar. Despite bets for a December Fed rate hike and Middle East jitters, the recent decline in US bond yields keeps USD depressed near a three-week low. Moreover, hawkish BoJ expectations and intervention risks underpin the Japanese Yen, further weighing on the currency pair.

Gold bounces off monthly low as USD selling remains unabated amid falling bond yields

Gold pares heavy intraday losses to the monthly trough, though it retains an intraday bearish tone below $4,100 during Thursday’s early European session. The US Dollar selling bias remains unabated as Federal Reserve officials recently signaled there is no urgency to raise interest rates at the upcoming October 27–28 meeting. Furthermore, US bond yields extend their retracement slide from multi-year highs, keeping USD bulls on the back foot and offering some support to the precious metal.

Dogecoin stays weak despite whales and new deal

Dogecoin price remains under pressure, trading below $0.081 despite a modest rebound earlier this week. Santiment data shows signs of accumulation, and Wednesday’s announcement of a Dogecoin Labs partnership with the Dogecoin Foundation adds a mildly bullish sentiment. Meanwhile, mixed derivatives metrics and weakening momentum indicators continue to limit the meme coin recovery.

Dow Jones Industrial Average climbs with the AI trade, led by a bank

The Dow Jones Industrial Average got most of its share of Wednesday's artificial intelligence (AI) rally from a bank and a bulldozer maker. The index closed near 52,800, its highest close since early September. SpaceX (SPCX) reported 161% revenue growth and the Nasdaq Composite rose more than 1%, but under price weighting the gains that counted most belonged to Goldman Sachs (GS) and Caterpillar (CAT).

The US Dollar fell. Gold didn't rally. That tells you everything
Gold (XAU/USD) is struggling to capitalize on a weaker US Dollar (USD), after repeatedly failing to establish itself above the $4,200 level. The precious metal remains confined to a relatively narrow trading range despite a combination of developments that would normally support higher prices.