Buffett’s Berkshire Operating Profit Sinks 32%, Buys Back $9B In Stock

Billionaire Warren Buffett’s Berkshire Hathaway posted a 32% decline in quarterly operating profit, while bumping up its share repurchases as the coronavirus pandemic continued to negatively impact its holdings.

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Berkshire’s (BRK.B) operating earnings in the third quarter dropped 32% to $5.48 billion, or about $3,488 per Class A share, from $8.07 billion in the same period a year ago. Analysts had expected operating earnings per Class A share of $3,587.63.

Meanwhile, net income attributable to shareholders surged 82% to $30.1 billion, or $18,994 per Class A share, from $16.5 billion, or $10,119 per share. The investment conglomerate benefited from a $24.7 billion investment and derivative gain as the value at some of its large holdings, including Apple, Bank of America, American Express and Coca-Cola, improved during the period. Shares of Apple have appreciated 27%, while Coca-Cola rose about 11% in the three months to Sept. 30.

Revenue slipped 3% to $63 billion during the reported period. In addition, Berkshire repurchased $9 billion during the third quarter taking the 9-month total to about $16 billion.

“As the COVID-19 pandemic accelerated beginning in the second half of March, most of our businesses were negatively affected. Revenues and earnings of most of our manufacturing, service and retailing businesses declined considerably, and in certain instances severely, in the second quarter due to closures of facilities where crowds gather, such as retail stores, restaurants and entertainment venues, public travel restrictions and from closures of certain of our businesses,” Berkshire stated in the earnings release. “In the third quarter of 2020, several of these businesses experienced significant increases in revenues and earnings as compared to the second quarter.”

Looking ahead, Berkshire expects its insurance business to continue to hurt its operations as the investment conglomerate said underwriting results at its insurance holding GEICO will likely be negatively affected over the remainder of the year and in the first quarter of 2021, which will be reflected in earned premiums during these periods. Already in the third quarter, insurance profit plunged 58% to $802 million, as a result of lower premiums at Geico, the coronavirus pandemic, natural catastrophes, including hurricanes, and record low interest rates.

In a bright spot, energy assets posted a profit of $1.395 billion in the third quarter, an increase of 18% from the same quarter last year.

Berkshire’s class B shares have jumped 29% since dropping to a low in March but are still trading 7.8% lower than at the start of the year. (See BRK.B stock analysis on TipRanks)

The two analysts covering the stock recently have assigned 1 Buy rating and 1 Hold rating adding up to a Moderate Buy consensus. The $220 average price target implies 5.3% upside potential over the coming year.

CFRA Research analyst Cathy Seifert, who has a Hold rating on Berkshire believes that “the market will be encouraged by the buybacks”.

“Many companies halted buybacks to preserve resources during the pandemic, though because Berkshire doesn’t pay a dividend the amount it is returning to shareholders pales bit,” Seifert commented.