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Warren Buffett’s firm reports USD12.8B loss

OMAHA (AP) – Warren Buffett’s company has reported a nearly USD13 billion loss in the third quarter as the paper value of its investments fell, but the companies it owns – particularly the insurers – generally performed well.

Berkshire Hathaway said on Saturday that it lost USD12.8 billion, or USD8,824 per Class A share, in the quarter. That’s significantly bigger than the USD2.8 billion loss, or USD1,907 per Class A share, that it reported a year ago.

But most of those investment losses are unrealised because Berkshire didn’t actually sell most of its stocks with its biggest holding being a massive stake in Apple.

Accounting rules require it to include the value of its investments, which it put at USD341.1 billion at the end of the quarter, in its earnings. Last quarter, it said its stock portfolio was worth USD353 billion.

That’s why Buffett has long said investors are better served focusing on Berkshire’s operating earnings, which exclude the value of its investments that can vary widely quarter to quarter.

ABOVE & BELOW: People visit an Apple store in Shenyang, in China’s northeastern Liaoning province; and Chairman and Chief Executive Officer of Berkshire Hathaway Warren Buffett. PHOTO: AFP & AP
PHOTO: AFP & AP

By that measure, Berkshire said its operating profit jumped nearly 41 per cent to USD10.8 billion, or USD7,437.15 per Class A share. That’s up from USD7.65 billion, or USD5,215.60 per Class A share, a year ago.

The three analysts surveyed by FactSet Research expected Berkshire to report operating earnings per share of USD6,540.23 on average. Berkshire’s insurance unit was helped by relatively low losses related to major catastrophes like hurricanes this year and a rebound in Geico’s profits.

Altogether, Berkshire’s insurers contributed USD2.4 billion to its operating profit. A year ago, the insurers reported a USD1.1 billion loss in the third quarter.

CFRA Research analyst Cathy Seifert said the insurance results reflect Berkshire’s pricing power in commercial and reinsurance because it was able to raise rates on many of its policies, and the changes Geico made.

Geico improved its profits by raising its rates nearly 17 per cent over the past year and cutting the number of policies it writes by 13 per cent.

In addition to insurers, the conglomerate owns BNSF railroad, several major utilities and an eclectic assortment of manufacturing and retail firms including aviation parts maker Precision Castparts, Dairy Queen and Helzberg Diamonds.

Profits fell at the railroad to USD1.2 billion from last year’s USD1.4 billion as BNSF hauled nearly five per cent fewer shipments with the biggest drop in volume coming in consumer products.

The utility unit contributed only USD498 million to Berkshire’s operating profit, down from USD1.6 billion a year ago as its operating expenses soared 55 per cent to USD3.7 billion.

The biggest driver in that increase in expenses was a USD1.3 billion loss related to wildfires at its PacifiCorp unit.

Berkshire got a USD183 million boost in the quarter from its acquisition of 80 per cent of the Pilot Flying J network of truck stops that it made at the start of the year, but the quarterly report made no mention of the lawsuit Pilot’s founding family recently filed to settle a dispute over how much Berkshire will pay to eventually acquire the remaining 20 per cent.

Berkshire did repurchase USD1.1 billion of its own stock in the quarter, but the pace of its buybacks is down considerably from the first quarter, when it bought USD4.4 billion of Berkshire shares. Buffett only buys back Berkshire’s shares when he believes they are selling for a bargain.

Buffett continues to sit on a massive pile of cash because he hasn’t made any major investments or acquisitions this year.

Berkshire had USD157.2 billion in cash at the end of the quarter, up from USD147.4 billion at the end of the second quarter.

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