Buffett’s Berkshire tops profit forecasts despite trade, cash drags

Berkshire Hathaway Inc on Saturday said its quarterly operating profit rose more than analysts expected, as growth in several business lines offset the drag from trade tensions and tariffs and billionaire Warren Buffett’s inability to deploy the conglomerate’s cash.

Berkshire benefited as resilience in consumer spending helped cause US economic growth to slow less than expected, offsetting a contraction in business investment.

But rising stock prices are still impeding Buffett’s efforts to find places to invest.

Berkshire ended September with a record $128.2 billion of cash, despite repurchasing $700 million of stock in the quarter, and its stock price has lagged the broader market by the most since 2009.

Buffett has gone nearly four years since making a major acquisition.

His Omaha, Nebraska-based conglomerate operates more than 90 businesses including the Geico auto insurer, BNSF railroad, Dairy Queen ice cream, Fruit of the Loom underwear, and its namesake energy company and real estate brokerage.

Berkshire said third-quarter operating income rose to $7.86 billion, or roughly $4,816 per Class A share, from $6.88 billion, or roughly $4,189 per share, a year earlier.

Analysts on average expected operating profit of $4,405.16 per share, according to Refinitiv IBES.

Net income fell 11% to $16.52 billion, or $10,119 per Class A share, from $18.54 billion, or $11,280 per share, reflecting fewer gains from Berkshire’s investments.

A US accounting rule requires earnings to incorporate unrealized gains, including on investments such as Apple Inc and Bank of America Corp. Buffett said the resulting volatility can mislead investors.

Class A shares of Berkshire closed Friday at $323,400, up 5.7% in 2019, lagging the 22.3% gain in the Standard & Poor’s 500. Class B shares closed at $215.83, also up 5.7%. 

Tariffs weigh 

US gross domestic product increased at a 1.9% annualized rate in the third quarter, the Department of Commerce said on Wednesday in its advance estimate of economic growth.

But the Federal Reserve on the same day nevertheless lowered interest rates for the third time this year amid uncertainty over trade policy, slowing global growth and Great Britain’s proposed exit from the European Union.

BNSF, one of Berkshire’s largest businesses, was able to boost profit 5% to $1.47 billion.

The railroad’s cost-cutting helped offset lower revenue as demand for consumer, coal, industrial and agricultural products declined, the latter in part because of new trade policies.

Berkshire also blamed US tariffs for cutting into sales of gas turbine and pipe products by its Precision Castparts unit.

Insurance underwriting profit was essentially unchanged at $440 million, as improved results from reinsurance offset higher loss claims at Geico.

Berkshire warned that Typhoon Hagibis, which caused widespread damage in Japan, will likely hurt fourth-quarter underwriting results.

Nevertheless, float, or insurance premiums collected before claims are paid, a major driver of Berkshire’s growth, rose about $2 billion in the quarter to $127 billion.

Profit rose 2% in manufacturing, services and retailing businesses, to $2.46 billion, as higher sales from Berkshire’s auto dealer and Clayton Homes mobile home units offset lower revenue from the Duracell battery, Forest River RV, and various apparel and footwear businesses.

Berkshire Hathaway Energy saw profit rise 8%, to $1.18 billion, helped by tax credits.