Third-quarter earnings for Warren Buffett's Berkshire Hathaway surprised to the upside Saturday as the company's insurance business — Geico in particular — delivered again. Berkshire Hathaway stock failed a key test again Monday.
For Q3, Berkshire delivered operating earnings of $4.96 per share, a 40.6% jump year over year and well above the $4.36 analyst consensus view, FactSet shows.
Excluding insurance, Berkshire's operating earnings actually fell by 20%.
Berkshire Earnings Rise
Buffett is said to have once called Geico, one of his oldest investments, a "favorite child" — but it turned into a problem child in 2022. In Q3, the car insurance company made further progress on its comeback.
"Margins were aided by a turnaround in insurance underwriting profitability, particularly at Geico," Cathy Seifert, vice president at CFRA Research, wrote in a research note Monday.
In the insurance segment, investment income for the quarter surged 75% from a year ago, mainly due to higher interest income. The rebound in yields helped, with Berkshire investing heavily in short-term Treasury bills with yields above 5%.
In the underwriting business, Berkshire Hathaway Primary Group, Berkshire Hathaway Reinsurance Group and Geico all posted profits in the absence of major catastrophe events.
Geico stood out. It posted a $1.05 billion billion pre-tax underwriting profit, its third straight profitable quarter after six quarters of losses. The insurer also recorded its strongest underwriting profit margin since Q1 2021, said Edward Jones analyst James Shanahan.
It benefited from higher average premiums, lower claims costs and lower ad spending.
"Previously, Geico was a growth engine for both profits and float, so progress in returning the company to its former glory should be watched closely," said Bill Stone, chief investment officer of Glenview Trust.
Insurers have been outperforming the market, with Progressive and Allstate showing two of the biggest advances among S&P 500 stocks over the past three months.
In 2022, Geico lost market share to Progressive, a leader in telematics, which uses data-driven insights to try to match rates and risk.
Geico has made a serious effort to catch up in telematics, Berkshire Hathaway says.
Railroads And Energy Drag
Unlike insurance, railroad and energy weighed on Berkshire's earnings during the quarter.
The railroad business, including Burlington Northern Santa Fe, saw operating earnings fall 15%. It reported lower freight volumes and higher nonfuel costs, offset by lower fuel costs.
The energy business, a collection of regulated utilities and pipeline companies, saw operating earnings fall 69%. Wildfire liability and a slowdown in housing activity hurt the unit, which includes Berkshire Hathaway HomeServices, a real estate brokerage firm.
Warren Buffett Stock Sales
In Q3, Berkshire continued to be a net seller of stocks. It bought $1.7 billion of stocks and sold $7 billion, for a net decrease of about $5.3 billion.
That included sales of roughly $2 billion of its Chevron holdings, Stone said, citing a 10Q filing.
More details of Berkshire's Q3 stock buys and sells will come in its 13F filing, due in mid November.
Berkshire Hathaway Stock Buybacks Slow
Berkshire bought back almost $1.1 billion of its stock in the quarter, with the pace of buybacks rising in September as the stock fell. But its share repurchases slowed from $1.4 billion in Q2 and $5 billion in Q1.
Berkshire Cash Hoard Swells
At the end of September, Berkshire held a record $157 billion in cash on the back of stock sales. Its mammoth cash pile has risen every quarter in 2023 and is up $29 billion year-to-date.
Berkshire Stock Falls
B-class shares of Berkshire slipped 1.4% to 347 on the stock market today. BRKB stock retreated after failing for a second day to top resistance at the 50-day moving average.
CFRA's Seifert on Monday hiked the price target on buy-rated Berkshire stock by $10 to $405, saying "strong top-line growth and improved margins will provide the shares with a catalyst."
