Warren Buffett’s company, Berkshire Hathaway (BRK, Financial), reported its third-quarter earnings on Friday, November 7, and sent the stock spiraling upwards as it beat the Street’s earnings expectations. The diversified holding company has really left analysts’ glued to their monitors when the results were released, and it reflects the firm investments made by the company to keep its profits intact or even moving into the better zone. Let’s quickly peek into the quarter highlights and how the performance in this quarter could affect Buffett’s fortune.
The numbers were interesting
The company posted third-quarter earnings of $2,811 per Berkshire A share which topped estimates for $2,594 per share according to the analyst consensus. The holding company reported $51.2 billion in revenue, up 10% from the same period last year and net income stood at $4.6 billion, 9.4% down from the last year.
While filing with the SEC, the company noted, “Our subsidiaries engage in a number of diverse business activities” and ”are managed on an unusually decentralized basis.” The largest contributor to the earnings came from the manufacturing line of business which brought in nearly $1.2 billion. The second-largest business line is the rails business that fetched around $1 billion. In the quarter, the revenue received a boost through the energy and railroad investments which helped in improving the revenue when compared to the previous year. Earnings from non-insurance businesses totalled $3.25 billion, up from $2.78 billion a year ago. Insurance earnings totalled $1.44 billion, up from $1.03 billion a year earlier. The breakup of the net income components of the company is provided below:-
It is to be noted that two of the company’s biggest investments, Coca-Cola (KO, Financial) and IBM (IBM, Financial), have cost Buffett $2.52 billion when they fell short of earnings expectations in late October. IBM recorded a 17% drop in profits while Coca-Cola exhibited a flattish sales trend in the third quarter and lowered its guidance for the entire year. The company has also been forced to reduce its exposure in Tesco (TESO, Financial) shares to less than 3% in the quarter since Tesco is under criminal investigation after the huge accounting scandal. In fact, Buffett speaks of the investment in Tesco to be a gross mistake by the company. The investment in Tesco has dragged the net profit of Berkshire Hathaway down to $4.6 billion from $5.1 billion reported a year-ago.
Share repurchase is not very likely
Presently the book value of Berkshire A shares stand at $144,542 per share, and Buffett has expressed his vision of repurchasing shares if the price falls to 1.2 times the book value. This means that taken the current scenario, the share price would have to fall almost 24% to potentially spark a buyback. Hence, investors should understand that repurchase of the stock is highly unlikely at this juncture.
Buffet’s fortunes to grow
While Berkshire A shares crossed the $200,000 mark for the first time in summer and finished trading on Friday at $214,970 a share after hitting a new high of $215,925 in intraday trading, Buffett also became richer after the results were made public. His personal wealth has notched up by about $55 million soon after the results release, and now he holds the second position among the richest Americans with net worth of $70.3 billion.
To conclude
The king of investments knows well which company should be invested in and which company should be exited to keep the earnings stable and growing at a steady pace. The company has agreed to acquire auto dealership Van Tuyl Group in October and Buffett feels that this is only the beginning to a new chapter for Berkshire Hathaway as it makes a solid entry into the automotive sector. Let’s stay tuned and keep watching the upcoming moves of Warren Buffet and his company.
