Berkshire Profit Surges as Buffett's Insurers Weather Storms

(Bloomberg) -- Berkshire Hathaway Inc.’s insurers dodged the worst of losses caused by Hurricane Florence as the businesses kept up their rebound from a rough 2017.

The company’s operating profit doubled last quarter, capitalizing on trends ranging from more train traffic on its railroad to a surge in demand for electronic components. The biggest boost came from the insurance division, where catastrophe costs fell almost 90 percent from last year’s disastrous third quarter, the sharpest decline among all major publicly-traded U.S. insurers.

Chairman Warren Buffett has spent more than 50 years expanding his conglomerate into sectors spanning energy, railroads and manufacturing. Insurance has always been central to Buffett’s strategy, generating cash that the billionaire can then invest before paying claims. The key is avoiding large costs that drag down the other businesses when disasters hit.

“The insurance results represented a sharp turnaround in the absence of last year’s record losses,” Cathy Seifert, an analyst at CFRA Research, said in an interview. “Overall, it was a very strong quarter. It came in better than I thought.”

Berkshire also gained from a lower corporate tax rate as operating profit climbed to $6.88 billion, up from $3.44 billion in the third quarter of 2017. Earnings rose in all of Berkshire’s reporting segments.

Berkshire Profit Surges as Buffett's Insurers Weather Storms

A new company policy in July gave Buffett more leeway to buy back Berkshire’s stock, and he repurchased $928 million worth in the quarter. That amounts to dipping a toe, since he’s still left with a $103.6 billion pile of cash to put to work.

Net income more than quadrupled in the quarter, thanks to a new accounting rule that includes swings in the company’s stock portfolio in that figure. Buffett has warned the moves could be “wild and capricious” and told investors to look at operating profit instead.

More Highlights

  • Insurance underwriting has delivered $1.79 billion of profit in the first nine months of this year, compared to a loss of $1.73 billion during the same period of 2017. Catastrophe losses fell to $372 million in the third quarter, down from $3 billion in last year’s period.
  • Tighter trucking capacity and economic growth spurred gains at Berkshire’s railroad, which reported a 34 percent increase in profit during the third quarter. The unit called out revenue increases of more than 17 percent in shipping both industrial and agricultural products.
  • Profit from Buffett’s manufacturing, retailing and servicing businesses jumped 24 percent in the quarter. This year’s surge in demand for electronic components fueled gains at Berkshire’s TTI unit.
  • Read the statement here and the quarterly regulatory filing here.

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