Berkshire's Quarter: Insurance Disappoints, but Cash Piles Up

Berkshire's Quarter: Insurance Disappoints, but Cash Piles Up

October is in the books -- with stocks posting a monthly return of 4.4%, no less -- and November is off to a good start. Following two days of losses, the S&P 500, and the narrower price-weighted Dow Jones Industrial Average , gained 0.29% and 0.45%, respectively, on Friday.

Berkshire Hathaway , the candy-to-utility conglomerate led by billionaire investor Warren Buffett, reported its third-quarter results after Friday's market close. The verdict? Good numbers, but not spectacular; Berkshire's B shares were down a quarter of percent in the after-hours session.

Berkshire beat expectations on the top line, with revenues of $46.54 billion against a forecast of $44.5 billion. Net income rose 29%. to $5.05 billion, or $3,074 per A share, but that figure was bolstered by $1.39 billion in investment and derivative gains, up from $521 million in the year-ago period.

Berkshire's operating earnings rose 8% year on year, to $3.66 billion, equivalent to $2,228 per A share; however, that fell short of analysts' expectations for $2,402 per A share. Operating earnings do not include investment and derivative gains and are, therefore, a better measure of the performance of Berkshire's business -- as stated clearly by management in the quarterly report:

We believe that realized investment gains/losses and other-than-temporary impairment losses are often meaningless in terms of understanding our reported results or evaluating our economic performance.

Operating earnings rose across all businesses relative to the prior-year quarter, except for insurance underwriting, which was dogged by significant losses and loss-adjustment expenses at GEICO, and catastrophe losses due to a hail storm in Europe.

Although Warren Buffett did not add any "elephants" to Berkshire's stable of operating businesses during the quarter, one of Berkshire's subsidiaries, did complete a relatively sizable, yet low-profile "tuck-in" acquisition. The target was Meadowbrook Meat Company, "a large customized foodservice distributor for national restaurant chains with annual revenues of approximately $6 billion."

That still left Berkshire with $35.3 billion in cash and cash equivalents on its balance sheet at the end of the quarter. Given that Mr. Buffett wishes to keep a minimum of $20 billion in cash for liquidity purposes, that still leaves a good bit of change to play with. Shoulder your elephant gun, Mr. Buffett -- shareholders are impatiently awaiting your next trophy!

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Fool contributor Alex Dumortier, CFA has no position in any stocks mentioned; you can follow him on Twitter @longrunreturns. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Originally published