More Than Meets The Eye: Berkshire Hathaway's Q3 2024 Earnings Report

Lots to unpack in Berkshire's latest quarterly report...

In the run-up to Berkshire Hathaway’s Q3 2024 earnings report, I had two big questions on my mind: Would the conglomerate’s cash total exceed $300 billion and did Warren Buffett sell any more Apple stock in the quarter?

On Saturday morning, I got my answer.

A resounding yes on both counts.

We’ll get to all of that in short order, but first a word of caution. Berkshire’s third quarter results — or at least the headline numbers reported by much of the mainstream financial media — are not entirely what they appear to be on first glance.

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IT WAS JUST SIX MONTHS AGO OR SO THAT BERKSHIRE HATHAWAY’S CASH MOUNTAIN STILL STARTED WITH A ONE. But, in the second quarter, it blew past $200 billion — and then wasted no time in trading up for fancier digs in the $300 billion neighborhood now.

Determining Berkshire’s cash number is always a bit of a Choose Your Own Adventure. Most outlets combine all of the cash and short-term equivalents in both Insurance & Other and Railroad, Utilities, and Energy — which, this quarter, would add up to $325 billion.

I typically exclude Railroad, Utilities, and Energy from Berkshire’s cash total on the assumption that they need that cash for their own operations. (This also seems to be how Buffett himself frames Berkshire’s cash in his slides at the annual meeting. And, as always, I defer to the master on matters such as this.)

So, even at the best of times, different cash numbers are floating around out there.

This quarter, though, there’s also a $14.8 billion liability — payable for purchases of U.S. Treasury Bills — to account for. Starting with $320.3 billion (using my method of calculating Berkshire’s cash) and subtracting that liability leaves us with $305.5 billion.

Which, happily, is also the official tally that Berkshire reports on page 48 of the 10-Q.

Any way you slice it, that’s a heck of a lot of money.

While some people angst over Berkshire holding so much cash — and plenty felt this way back when the number was $100 billion, let alone $305.5 billion — I rest easy knowing that Buffett has a war chest of epic proportions with which to operate.

No one knows when an elephant might wander by — and there’s no one I’d rather have waiting to bag the big one for me than the Oracle of Omaha.

• Berkshire’s cash total draws no end of attention, but it’s probably wiser to look at it in relation to the conglomerate’s total assets rather than as an eye-popping number on its own. At $305.5 billion, it now represents 28.6% of total assets — up from 24.5% in the second quarter. And well above the mid-teens of recent years.

• For several years now, consistent share repurchases served to sop up extra cash — but, as Berkshire’s share price rose to new heights, that outlet became less and less attractive. And, in the third quarter, it came to a dead stop. Buffett made no share repurchases in this period. I had kicked around the idea that he might have bought back Ajit Jain’s shares in order to keep those precious Class A’s in house. Wrong again.

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WARREN BUFFETT CONTINUED TO PEEL BACK APPLE. In the third quarter, Berkshire Hathaway sold ~100 million more shares of Apple — reducing its position to about 300 million shares. We won’t get an exact count until the 13F comes out next week, but it’s possible that Berkshire now owns exactly 300 million shares.

But, after unsuccessfully reading the tea leaves when Berkshire ended the second quarter with exactly 400 million shares, that might not mean much.

(Full disclosure: I would love for Buffett to stand pat here. I’m one of those oddballs who didn’t mind — and even kinda liked — the outsized investment in Apple. Even when it was 915 million some shares. But I’m a dyed-in-the-wool coffee canner who hates to sell anything, so your mileage might vary on that.)

Between the heavy sales of Apple and Bank of America — which we already knew about — the value of Berkshire’s top five stock holdings as a percentage of total investments in equity securities dropped to 70%. That’s down from 79% at the end of last year. The portfolio is less top heavy than before, though still heavily concentrated in the top names.

• The real shocker here is that Berkshire’s position in Chevron appears to be unchanged. As I’ve marveled at many times, Buffett had either bought or sold Chevron stock in sixteen consecutive quarters. That incredible streak might now be over. (If this is the end, I’d love to know why he consistently tinkered with this one holding — unlike so many others — for so long? And why he stopped now?)

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OPERATING EARNINGS — WARREN BUFFETT AND CHARLIE MUNGER’S PREFERRED PERFORMANCE METRIC — ARE MORE THAN MEETS THE EYE.

Berkshire Hathaway reported a decline of 6% in operating earnings for the third quarter — but the real story goes much deeper than that headline number. In short, unrealized foreign exchange rate fluctuations wreaked havoc on the final results.

“The gains and losses [from revaluing foreign currency into U.S. Dollars] recorded in any given period can be significant due to the magnitude of the borrowings and the inherent volatility in foreign currency exchange rates,” reads the 10-Q.

Berkshire’s operating earnings actually turn positive once controlled for these unrealized for-ex flutters. Doing that — removing the $1.1 billion “loss” in Q3 2024 and the $447 million “gain” in Q3 2023 — results in an 8.5% gain instead.

Insurance underwriting suffered a $1.7 billion drop in earnings — though results differed tremendously by segment. Berkshire estimates losses from Hurricane Helene at $565 million — and is also bracing for pre-tax incurred losses of $1.3-1.5 billion from Hurricane Milton.

• GEICO remains in cruise control with an 81.0% combined ratio and a 93.1% jump in pre-tax underwriting earnings in Q3. Those quarters full of red ink seem like nothing more than a faint memory these days. (I hope I didn’t just jinx them.) The auto insurer accomplished this latest surge while growing policies-in-force — which it attributes to increased new business and stable retention rates. GEICO had previously been trading growth for profitability, but now seems to be proving that it’s once again capable of doing both at the same time. Happy days.

• It’s something of a different story over at Berkshire’s Primary Group — what with its ghastly 114.7% combined ratio. A significant portion of this backslide comes from GUARD. “As a result of deteriorating loss experience,” says the 10-Q, “new management performed a comprehensive review of claims and, as a result, increased estimated ultimate claim liabilities.” GUARD’s new management also decided to exit the admitted homeowners field and tighten underwriting guidelines in its other lines of business. This led to a decline in premium volume.

• The Reinsurance Group posted a higher-than-usual 97.0% combined ratio — a mix of Hurricane Helene losses and two particular items that notably increased expenses. First, National Indemnity Co. recorded a pre-tax charge of $490 million “in connection with a settlement agreement reached concerning certain non-insurance affiliates”. And, second, $171 million of those pesky foreign currency exchange losses. If not for these two items, the group’s underwriting expenses would have actually decreased by $98 million in the third quarter.

BNSF Railway: Back on track? The Berkshire-owned railroad increased its earnings by 13.3% in the quarter — boosted by 8.3% higher car/unit volumes and other improvements in employee productivity and operating costs. BNSF’s 65.1% operating ratio is 3.4% better than a year ago. We’re still not quite in Union Pacific’s class (60.3% operating ratio), but encouraging improvement nonetheless. Maybe this is a sign that operations guru Ed Harris is making his presence felt as a consultant over at BNSF.

Berkshire Hathaway Energy’s earnings increased by $1.1 billion — helped along by a flattering year-over-year comparison in U.S. utilities. In Q3 2023, BHE booked $1.3 billion for wildfire litigation losses — which sunk the segment into negative territory a year ago. This created a nearly $1 billion swing back to profitability this quarter. Earnings from natural gas pipelines rose by 10.9% and other energy surged 20.9% on the back of a strong performance out of Northern Powergrid.

• On the final day of the quarter, BHE acquired its remaining ownership interest from the Walter Scott estate — and, thus, became a wholly-owned subsidiary of Berkshire Hathaway itself — via several separate transactions.

  • 5.85% of BHE (and $100 million of debt) for $2.4 billion in cash and a $600 million promissory note. The note was fully repaid in October 2024.

  • 1.26% for 1,368,508 shares of Berkshire’s Class B stock (valued at $625 million on September 30).

  • And the remaining bit for 923,123 shares of Berkshire’s Class B stock.

Manufacturing, Service, and Retailing scuffled along — with earnings slumping 5.9% in the third quarter. The manufacturing segment eked out a small gain, but service and retailing both posted 20+% declines in earnings. Retailing, in particular, made for some grim reading: “Aggregate pre-tax earnings for [everything outside of Berkshire Hathaway Automotive] declined $77 million (61.9%) in the third quarter … All of our other retailers generated lower earnings in 2024 compared to 2023.”

• More on MSR (and other Berkshire subs like Pilot) coming on Friday.