Berkshire Hathaway reported a 29% increase in third quarter operating profits as compared to the corresponding quarter in 2013. Including a $678 million impairment charge relating to its investment in U.K. retailer Tesco, and accounting for investment sales and derivatives, net income declined 8.6%. Warren Buffett has said on numerous occasions that Berkshire’s performance should be judged by its operating earnings and not by the timing of its investment sales or its accounting for its derivatives. Berkshire’s operating profit of $2,876 per Class A share exceeded by 11% the $2,594 expected by analysts polled by Thomson Reuters. Revenues rose by 10%.
Approximately 70% of Berkshire’s operating earnings were derived from its non-insurance businesses, primarily Burlington Northern Santa Fe Railroad, Berkshire Hathaway Energy, and its various manufacturing, service, and retailing units.
As of September 30, 2014, Berkshire’s stock portfolio was valued at $118.9 billion. Its cash position was at a record level of $62.4 billion versus $48.2 billion a year earlier. Since Mr. Buffett has stated that he would like to have $20 billion in cash at all times, he now has over $40 billion available for one or more major acquisitions.
At Friday’s closing price of $214,970, each Class A share currently is valued at 1.5 times Berkshire’s book value of $144,542. This is very close to Berkshire’s historical average ratio of market value to book value.
I was quoted in a Bloomberg Businessweek article on this topic:
The $678 million impairment on Berkshire’s Tesco holding was a rare blunder for Buffett, who has amassed a superlative investing record during his five decades leading Berkshire. The grocer’s shares fell about 34 percent in the third quarter after the company disclosed its profit estimate was overstated.
“It’s certainly an anomaly,” said David Kass, a professor at the University of Maryland’s Robert H. Smith School of business who has taken students to meet Buffett in Omaha. “He’s not perfect, but his batting average is still high.”
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