A look at Berkshire Hathaway's third-quarter earnings; Marathon miracle

1) Warren Buffett's Berkshire Hathaway (BRK-B) has consistently been one of my favorite stocks for more than a quarter century.

The company reported third-quarter earnings on Saturday (see the full 10-Q here and the press release here). I always look forward to digging into Berkshire's earnings, so let's take a look...

The headline numbers were good, with net earnings attributable to Berkshire shareholders rising 17.3%, from $26.3 billion to $30.8 billion.

Here's the exact breakdown from the press release (the dollar figures are in millions, except for per-share amounts):

To understand what's actually happening here, we must first set aside mark-to-market changes in the investment portfolio...

One change was an unrealized gain of $9.2 billion, compared with a loss of $2.2 billion in the same period last year.

In addition, Berkshire had realized gains on investment sales of $8.2 billion, less than half the $18.4 billion gain in the same period last year.

These noncash fluctuations in the company's massive stock holdings mostly canceled each other out and are largely meaningless over short periods of time.

A more relevant metric is operating earnings, which rose a splendid 33.7% year over year. Take a look at this next table from the press release (dollar figures in millions):

Again, we need to make some adjustments here...

According to the 10-Q, insurance underwriting benefited from "lower incurred losses from current year significant catastrophe events and from prior accident years' claims, as well as the impact of accruals in the third quarter of 2024 in connection with a bankruptcy settlement."

The 10-Q also notes that "other earnings include corporate investment income not allocated to operating businesses... and foreign currency exchange rate gains..."

In short, there were a lot of one-time gains that inflated operating earnings, partly offset by less investment income due to lower interest rates.

Excluding all of this, combined operating earnings for its railroad business, energy business, and manufacturing, service, and retailing business rose 3.2% – roughly in line with GDP growth.

Next, let's turn to the cash-flow statement...

Cash flows from operating activities came in at $13.8 billion, and capital expenditures were $5.6 billion. That resulted in very healthy free cash flow of $8.2 billion.

Berkshire sold $12.5 billion worth of stocks while only purchasing $6.4 billion in the quarter. That nets to $6.1 billion of stock sales – the 12th consecutive quarter of net sales.

This, plus $8.2 billion of free cash flow, boosted Berkshire's cash hoard to an astounding $382 billion.

So, what does management plan to do with this increasing cash pile?

The usual plan would be to invest it in wonderful businesses at fair prices – either public or private. However, the company isn't finding much.

And Buffett certainly isn't putting it to work buying back shares. Berkshire hasn't made any repurchases in the past five quarters, which you can see in the chart below:

Since ramping up share repurchases in 2020 and 2021, the trend was largely downward then ceased altogether. I still think Buffett's reason for this is simple...

Berkshire's stock has done well over the past year and has been fully valued for most of this period.

And I expect Berkshire's cash hoard to continue to grow, barring any substantial pullbacks or market changes. As I've said previously, Buffett is likely OK with growing it in the short term, as he had expressed concerns about tariffs and fiscal deficits in the annual meeting.

But it wouldn't surprise me if Buffett and his successor Greg Abel announce that Berkshire will start returning capital to shareholders via dividends. That could happen at next year's annual meeting.

If so, I think the company might pay a modest ongoing dividend plus occasional large special dividends – similar to what big-box retailer Costco Wholesale (COST) does.

Tomorrow, I'll update my estimate of Berkshire's intrinsic value. So stay tuned!

2) An absolute miracle took place when I ran the New York City Marathon yesterday, the day after my 59th birthday...

It was only my second marathon – and the first since I ran it on my 49th birthday (my time was 4 hours, 3 minutes, and 10 seconds).

Given that I'm a decade older and didn't have much time to train (I only decided to run it two weeks ago), my expectations were low.

I thought I might be able to average 10-minute miles, which translates into a finish time of 4:22:00. But I secretly hoped to run 4:15:00 (a pace of 9:44 per mile).

I felt really good in the early miles, running just under a nine-minute pace while listening to a Scott Galloway podcast.

Then, after mile 8, I handed my phone belt and shirt to a friend alongside the course to get rid of every ounce of weight (he then took the subway and returned them to me at mile 23). Without my phone, I switched to listening to dance music I'd stored on my smartwatch (via Bluetooth headphones).

I felt so light, and the beat of the music energized me. So I took off, running the next 5 miles at a 20-second-per-mile faster pace than the previous 5 miles.

I hit the halfway point at 1:56:00, and I thought, "Holy cow! If I can run the second half in 2:04:00, I'll break four hours!"

So I just kept bouncing along, propelled by my incredible new shoes, the Puma Nitro Elite Fast-R 3s. It was my first time wearing them, as I'd bought them the day before after reading this Athletic article that says they're the lightest, fastest running shoes ever.

I'm now a believer. Even as my legs filled with lactic acid and started to hurt and feel heavy starting at about mile 20, these shoes wouldn't let me slow down.

I kept monitoring my watch, knowing I had little room to spare to break four hours. I cranked out 9- to 9.5-minute miles up 5th Avenue and into Central Park (with a quick stop to grab my phone belt and take a photo with my family, which you can see below).

I thought I had a minute to spare. But with 200 yards to go, my watch read 3:59:30... So I mustered every ounce of energy I had left and sprinted to the finish.

At the end, my watch read 3:59:59, and my official time was 3:59:54 – an absolute miracle!

(My cousin, a former 2:21:00 near-Olympic-level marathoner who paced me 10 years ago, joked that he'd have sent me straight to the medical tent for a blood draw to test for doping!)

Here are some pictures, and I posted two short video clips from mile 15 and mile 24 here:

Best regards,

Whitney

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