Buffett owned Berkshire Hathaway’s cash at record $157 bn after deal slump
By Max Reyes
Berkshire Hathaway Inc.’s cash pile hit a new record of $157.2 billion, buoyed by both higher interest rates and a lack of meaningful deals where billionaire investor Warren Buffett could put his money to work.
The stock – most of which Berkshire has parked in short-term government bonds – surpassed the previous record set two years ago, the Omaha, Nebraska-based company said Saturday. The conglomerate also reported operating profit of $10.76 billion, up from the previous year, as it benefited from the impact of higher interest rates on the cash pile and profits at its insurance business.
Even as Berkshire’s acquisition machine has ramped up in recent years, the company still struggles to find many of the big deals that boosted Buffett’s profile, leaving him with more money than he and his investment representatives could quickly deploy. After retiring during the pandemic, he has since acquired shares in Occidental Petroleum Corp. picked up and closed an $11.6 billion deal to acquire Alleghany Corp. to buy. Buffett has also leaned heavily on stock buybacks amid the lack of attractive alternatives, saying the moves benefit shareholders.
“Cash deployment is definitely slowing,” said Jim Shanahan, an analyst at Edward Jones. “Eventually, Berkshire will feel some pressure to put cash to work.”
The deal drought hasn’t dampened investor enthusiasm for the company. Class B shares hit a record high in September as investors sought their diversified range of businesses to hedge against deteriorating economic conditions. And while the stock has pared some of those gains, the stock is still up nearly 14% for the year.
The company also spent $1.1 billion on buybacks during that period, bringing the total for the first nine months of the year to about $7 billion. The conglomerate trimmed its overall stock portfolio in the quarter, earning about $5.25 billion in sales net of purchases.
Including losses on investments and derivatives, Berkshire posted a loss of nearly $12.8 billion for the quarter – larger than the year before – mainly due to losses on its stock portfolio. Berkshire often advises investors to look beyond investment gains or losses, which are tied to accounting rules, saying this can be misleading to investors.
The company operates and invests in every corner of the U.S. economy and owns companies like Geico, BNSF, Dairy Queen and See’s Candies, meaning investors see the company as a window into broader economic health.
The strength of the insurance business – plus the inclusion of Pilot Flying J’s profits, which Berkshire left out of last year’s results – helped boost profitability. Berkshire said its insurance business posted a profit of $2.42 billion, compared with a loss in the year-earlier period when the insurance industry was ravaged by catastrophes.
The company’s Geico unit, which has faced unprofitability in 2022, also posted gains compared to the same period a year ago as it cut ad spending by 54% year to date. The improvement follows efforts by the division to review underwriting policies after struggling with higher costs to replace or repair damaged vehicles. The effort cost it market share, raising questions about whether it will try to regain that ground.
Matthew Palazola, Senior BI Industry Analyst, and Eric Bedell, BI Analyst
Berkshire posted stronger operating profits, despite Buffett warning at its annual meeting in Omaha in May that profits at most of its operating units could fall this year as an “incredible period” for the U.S. economy comes to an end. Still, the Federal Reserve’s aggressive pace of rate hikes has helped the company earn bigger returns on the money it has stored mainly in short-term U.S. Treasury bonds.
At the same time, those higher rates created problems for some industrial companies in Berkshire. The conglomerate’s construction products business saw sales fall by 11% due to the rise in mortgage rates.
“The effects of significant increases in U.S. mortgage rates over the past year have slowed demand for our homebuilding businesses and our other building products businesses,” Berkshire said in a report detailing results. “We continue to expect that certain of our businesses will experience weakening demand and declines in sales and profits in 2024.”
Inflation weighed on other segments of the conglomerate. Profits at BNSF, the rail business, fell 15% due to lower freight volumes and higher operating costs, excluding fuel.