Berkshire Hathaway’s Operating Earnings, Free Cash Flow Fall in Third Quarter

Image: Berkshire Hathaway has reduced its stake in Apple and Bank of America.

By Brian Nelson, CFA

Berkshire Hathaway (BRK.A) (BRK.B) reported third quarter results November 2. Revenue edged down modestly on a year-over-year basis in the quarter, to $93 billion, while net earnings attributable to Berkshire Hathaway shareholders came in at $26.3 billion, up from a loss in the year-ago period as after-tax investment gains of $16.2 billion powered the improved performance.

Image: Investment gains powered Berkshire’s third quarter results.

After-tax operating earnings in the quarter, however, fell to $10.1 billion from $10.8 billion in the third quarter of 2023. Insurance underwriting experienced the biggest decline, with after-tax operating earnings dropping to $750 million from $2.4 billion in the year-ago period due in part to Hurricane Helene. After-tax operating earnings for insurance investment income, BNSF, Berkshire Hathaway Energy Company, and Pilot experienced improvement, while after-tax operating earnings for its other controlled businesses, its non-controlled businesses, and other fell on a year-over-year basis.

Berkshire Hathaway’s cash and short-term investments in U.S. Treasury bills expanded to $325.2 billion at the end of the quarter, up from $167.6 billion at the end of the year. For the first nine months of 2024, cash flow from operations dropped to $26 billion from $34.8 billion in the same period a year ago. Capital spending was relatively flat on a year-to-date basis versus last year. Berkshire Hathaway recorded free cash flow of $12.3 billion through the first nine months of the year, down from $21.1 billion in the year-ago period.

Berkshire’s rising cash balance is a function of free cash flow and selling two of his big winners in Apple (AAPL) and Bank of America (BAC). Its Apple stake now stands at $69.9 billion, down from $174.3 billion at the end of last year. Its Bank of America stake now stands at $31.7 billion, down from $34.8 billion at the end of last year. American Express (AXP), Coca-Cola (KO) and Chevron (CVX) are also key positions within Berkshire’s portfolio. Berkshire also owns sizable stakes in Kraft Heinz (KHC) and Occidental Petroleum (OXY).

Berkshire’s third quarter operating results weren’t great, and the firm noted that it expects pre-tax incurred losses from Hurricane Milton to be between $1.3-$1.5 billion and be reflected in its fourth quarter earnings. Free cash flow has faced some pressure during the first nine months of the year, and Buffett continues to cash out of Apple and Bank of America. Berkshire’s cash balance continues to swell, perhaps indicating that Buffett views the market as overheated at the moment. Total shareholders’ equity was $631.8 billion at the end of September, translating into a price-to-book ratio of 1.54. Shares of Berkshire are not cheap, in our view, but the company remains a key holding in the Best Ideas Newsletter portfolio.

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