Berkshire Hathaway Q3 profit down 77% to $1.06 Billion

Nov 07, 2008 Value Investing

Berkshire Hathaway Inc. announced a drop in their Q3 profit, the fourth consecutive one, on diminishing returns at insurance businesses and investment losses.

Net income fell 77% to $1.06 billion, or $682 per Class A share, from $4.55 billion, or $2,942 in the same period last year. Operating earnings per share fell to $1,335 from $1,655 a share in the three-month period a year ago, while revenue declined 6.7% to $27.93 billion. Investment income at Berkshire’s insurance units, including stock dividends, fell 12 percent to $809 million.

Some of the losses from derivatives ($1.26 billion) came about due to accounting rules related to calls Buffett made on four stock indices, including the S&P 500 and three foreign ones. If these indices fall below contractually agreed-upon levels at expiration dates beginning in 2019, Berkshire will lose the bets, worth $ 4.85 billion. This is inspite of the fact that Buffett has called derivatives ‘financial weapons of mass destruction.’

Buffett has committed around $28 billion this year to acquire companies, finance buyouts and purchase securities as prices fall and competitors are hobbled by limited access to credit, which is in line with his stated intention of buying US stocks.

In the wake of the financial turmoil that unfolded a couple of months ago, he picked up substantial stakes totalling $8 billion (Goldman Sachs - $5 billion, and GE – $3 billion). Earlier this year, in April, he helped Mars buy out Wrigley, and lent $3 billion to Dow Chemicals to help fund their acquisition of Rohm & Haas Co. in July.

As on September 30, Berkshire said its stock portfolio was worth $76 billion, which represents an increase of 9.4% over a three month period.