Berkshire operating profit grew even larger this quarter hitting record-high earnings

Berkshire Hathaway Inc. operating earnings has hit a record high in the third quarter, climbing 14% to $7.86 from $6.88 billion since last year, fuelled in part by gains from its infrastructure businesses such as rail, energy and utilities – including BNSF railroad which added $1.466 billion net income during the quarter. $467 million in gains also came from Kraft Heinz shares that impressed after two flat quarters. 

This is equivalent to roughly $4,816 per Class A share, up from roughly $4,189 per share a year earlier, outperforming analyst expectations of an operating profit of $4,405.16 per share, according to Refinitiv IBES. 

The company also experienced a rise in investment income including dividends as revenue climbed 2.4% from its insurers and manufacturing businesses. Insurance underwriting was flat. Berkshire’s other businesses including retailing, aircraft parts and home-building saw small gains as well. 

Profits from the above-mentioned helped off-set losses from a lower demand for coal, industrial and agricultural products as well as lower revenue from the Forest River RV, Duracell battery and apparel and footwear businesses. 

These gains have seen Berkshire’s cash pile top $128 billion as of September 30th despite repurchasing $700 million of its own shares in the quarter. 

Buffett did say in the 2018 annual letter to shareholders that “It is likely that – over time – Berkshire will be a significant repurchaser of its shares.”

Berkshire has added over $100 billion in cash, cash equivalents and US Treasury Bills from $23 billion in 2009, according to S&P Global Market Intelligence data through the second quarter. 

Buffet was a net seller of stocks in the quarter and it begs the question where he will utilise his buying power. Almost four years have passed since Buffett’s last major acquisition and he is currently searching for what he calls an “elephant-sized” acquisition to add to Berkshire’s portfolio – now he has even more cash to do so. 

As Warren Buffett says, “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.

When a great opportunity comes along he’ll undoubtedly take it. Clearly he is prepared with the amount of cash he has available.

Berkshire Hathaway’s edge has always been about generating a lot of cash and investing it to generate even higher returns through capital-intensive businesses such as utilities, or through acquisitions. One such example is Berkshire Hathaway Energy which is a holding company for utility Blue Chips, 90% owned by Berkshire Hathaway. Profits from Berkshire Hathaway Energy’s profits rose 8% to $1.18 billion in the third quarter. 

“It’s an obscene amount of cash.” Jim Shanahan, an analyst at Edward Jones, said in an interview. 

The importance of moving the cash into investments has never been greater though; it’s just a matter of time until we know where it’s going to go.

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