Berkshire Hathaway delivered a blockbuster third-quarter earnings report, with operating profits soaring 41% to reach a record $10.8 billion. The robust results demonstrate legendary investor Warren Buffett’s conglomerate remains an earnings powerhouse even amidst economic uncertainty. Berkshire’s diversified collection of businesses continues fueling its ever-rising cash stockpile, providing ample capital for acquisitions.
Operating earnings exclude investment gains or losses, providing a clearer picture of Berkshire’s underlying business performance. The company’s third-quarter operating profits of $10.8 billion handily topped last year’s Q3 earnings of $7.7 billion. This underscores the resilience of Berkshire’s dozens of subsidiaries across insurance, utilities, manufacturing, and more.
Even excluding major gains from 2021 property and casualty underwriting, operating earnings climbed nearly 17%. This reflects both a strong underlying business climate and Berkshire’s operational discipline. The company’s massive $157 billion cash balance gives it flexibility to continue investing in organic growth.
Insurance Remains Earnings Cornerstone
Berkshire’s wide collection of insurance brands, including leading auto insurer Geico, remains the company’s biggest earnings driver. Insurance provided around 53% of Q3 operating income, despite some pandemic-driven claims costs persisting for commercial customers.
Geico saw profits rebound to over $1.1 billion as policy growth resumed and driving activity normalized. Berkshire’s reinsurance divisions also delivered improved underwriting results as catastrophic claims slowed. Higher interest rates should further aid investment income on insurance float.
Railroad Recovers from Slowdown
BNSF, Berkshire’s extensive railroad network, overcame weak coal demand and supply chain woes to deliver a solid Q3 performance. Though rail volumes lagged in 2021, efficiency gains kept revenue roughly flat around $6 billion. With contract renegotiations underway, BNSF looks to mitigate inflationary pressures going forward.
Utilities Boosted by Rate Increases
Berkshire’s collection of electric and gas utilities, including MidAmerican Energy and NV Energy, benefited from rate increases tied to infrastructure investments. Higher rates provided an earnings buffer as usage declined. Continued investments in renewable energy sources like solar and wind could further boost utility profits over the long term.
Manufacturing Recovers from Shortages
Berkshire manufacturing businesses like precision cast parts shook off lingering supply chain disruptions to drive improved earnings. The company’s extensive industrial companies appear to be recovering strongly from the disruptions that hampered output and sales in 2021 and early 2022.
Investment Portfolio Declines on Apple Slump
Berkshire’s over $300 billion investment portfolio saw paper losses widen to $24 billion in Q3, driven by its massive Apple stake declining around 5%. However, Apple still accounted for over 40% of Berkshire’s investments at quarter-end, reflecting its long-term confidence.
Buffett views periods of market volatility as opportunities to deploy cash into new deals and bolt-on acquisitions at attractive valuations. Berkshire’s ability to put capital to work during turbulent times remains one of its starkest advantages.
Economic Outlook Remains Cautious
While Berkshire’s operating businesses showed resilience amidst rising rates and lingering inflation, management maintains a cautious outlook on broader economic conditions. Consumers continue to face pressure from elevated prices and higher mortgage costs.
Yet Berkshire feels its diversified mix of subsidiaries focusing on basic needs is well-positioned to weather downturns. The company’s rock-solid balance sheet also prepares it to capitalize when valuations turn favorable.
Conclusion
Berkshire’s standout Q3 results demonstrate its balanced business model can deliver growth in any environment. While some subsidiaries face near-term headwinds, the collection of companies generates ample cash to reinvest through capital projects and acquisitions.
With its war chest continuing to swell, Berkshire has the luxury to wait for quality assets trading at sensible prices. As long as Berkshire maintains its disciplined and patient approach, the company remains positioned to compound value over the long term.
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