Warren Buffett’s Berkshire Hathaway Adds to Cash Pile, Says Businesses Affected by Supply Chain Disruptions

Mandatory Credit: Photo by Igor Golovniov/SOPA Images/Shutterstock (11851855a)In this photo illustration Berkshire Hathaway Inc.
Igor Golovniov/SOPA Images/Shutterstock / Igor Golovniov/SOPA Images/Shutterstock

Warren Buffett’s Berkshire Hathaway reported its third-quarter earnings on Friday, Nov. 6, disclosing that the conglomerate had added to Buffett’s cash pile and increased its operating income. However, the Oracle of Omaha also said that many of its businesses were negatively affected by ongoing global supply chain disruptions. Indeed, profits dropped to $10.3 billion for the quarter, down from $30 billion in the same quarter last year.  

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Operating revenue totaled $6.46 billion for the quarter, up from $ 5.47 billion in the second quarter of 2021, according to the Securities and Exchange Commission third-quarter filing.

Berkshire’s businesses experienced significant recoveries in revenues and earnings, in some instances exceeding pre-pandemic levels over the second half of 2020 and continuing in 2021, according to the filing. “However, many of our businesses were negatively affected by ongoing global supply chain disruptions, including those attributable to major winter storms and a hurricane in North America, which contributed to higher input costs. We cannot reliably predict future economic effects of the pandemic or when business activities at our operations will completely normalize,” the company said in the filing.

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“Operating revenues, which exclude the impact of mark to market gain/losses on investments and derivatives, rose about 12% in Q3, about in line with my 12%-16% forecast,” Cathy Seifert, an analyst with CFRA Research, told GOBankingRates.

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“Operating earnings were up 18% despite wider insurance underwriting losses on higher catastrophes and claim cost inflation. Most of Berkshire’s economically sensitive businesses — primarily the consumer businesses and the energy and railroad units — benefited from what we’re seeing on a macro level — an increase in demand that is being constrained by supply chain issues and bottlenecks,” Seifert added.

Railroad, utilities and energy rose to $3.03 billion for the quarter, compared to $2.74 billion in the corresponding quarter last year, according to the filing. After-tax earnings of the railroad business increased 14.2% in the third quarter, reflecting overall higher freight volumes and lower costs due to improved productivity, partly offset by higher average fuel costs, while after-tax earnings of the utilities and energy business increased 7.2% in the third quarter.

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 Dev Randhawa, founder and chairman of Fission 3.0, told GOBankingRates that Buffet “is benefitting from an economic rebound, and almost to pre-pandemic levels. I think his energy portfolio … should outperform simply because of the under-investment in recent years. He should benefit from the new infrastructure bill, which includes investment in energy, and specifically in nuclear power.”

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In terms of insurance underwriting, Berkshire reported a $784 million loss, results hurt by $2.7 billion from “significant catastrophe events,” losses in excess of $100 million per event, in the U.S. and Europe, including approximately $2.2 billion in the third quarter, primarily from Hurricane Ida.  

Berkshire also held more than $149 billion in cash, cash equivalents and short-term Treasury bills at the end of the third quarter, up from $144 billion in the previous quarter. This is higher than at any point in the company’s history, according to The New York Times. The increase came even as approximately $7.6 billion was used to repurchase Berkshire shares during the third quarter, bringing the nine-month total to approximately $20.2 billion, according to the filing.

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“Per share results benefited from a 5.3% drop in the shares count as Berkshire ramped up its share buybacks, allocating $20.2B YTD versus $15.95 billion a year ago. We expect investors to applaud this move,” Seifert said.

Bloomberg reported that Buffett “has struggled with a high-class problem of having too much money in Berkshire’s pockets and not enough chances to put that to work in higher-returning assets.” With no major deals in recent quarters, Buffett has frequently turned to buybacks as one way to deploy the cash deluge, according to Bloomberg.

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About the Author

Yaël Bizouati-Kennedy is a former full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.

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