Berkshire's Q3 operating profit fell 6.2% year-on-year, below expectations, continues to reduce holdings in Apple, cash reserves hit a record high | Financial Report Insights

Due to poor performance in insurance business revenue, Berkshire Hathaway's revenue and operating profit unexpectedly declined slightly in the third quarter. Meanwhile, a significant reduction in key holdings pushed Berkshire's cash reserves to a record high. In the third quarter, Buffett continued to reduce his stake in Apple, with a reduction ratio as high as 25%.

On Saturday, November 2, Berkshire Hathaway announced its third-quarter financial report:

Total revenue for the third quarter was $93 billion, slightly lower than $93.21 billion in the same period last year;

Operating profit decreased by 6.2% year-on-year to $10.09 billion, falling short of the market expectation of $10.9 billion. Net profit was $26.25 billion, compared to a loss of $12.77 billion in the same period last year.

Investment income was $20.51 billion, compared to a loss of $29.78 billion last year.

Operating profit is the metric Buffett values most, as it reflects the actual growth of the diversified main businesses of its subsidiaries, while net profit includes "paper investment gains and losses that are meaningless during specific periods," which often fluctuate significantly.

Berkshire Hathaway's cash reserves increased by $48 billion to $325.2 billion in the third quarter, setting a new historical record. This was mainly due to Buffett selling $36 billion worth of stocks in the third quarter, with reductions in Apple and Bank of America bringing in $20 billion and $9 billion, respectively. Meanwhile, Buffett continued to avoid making significant acquisitions.

Divergence in Insurance Business Revenue

According to the financial report, the decline in revenue and operating profit in the third quarter was mainly due to poor performance in the insurance business, fluctuations in investment income, increased claims due to major catastrophic events (hurricanes), adjustments in the stock investment portfolio, and rising operating costs.

Performance in the insurance business showed divergence:

Operating income from insurance underwriting decreased by 69% to $750 million in the third quarter, while operating income from insurance investment increased by 48% to $3.66 billion.

Insurance float reached $174 billion.

Additionally, operating income from other group holdings in the third quarter was $3.34 billion; operating income from non-controlled enterprises was $199 million; and other operating income was -$877 million.

Continued Reduction in Apple Holdings in the Third Quarter, with a Reduction Ratio of 20%

According to Berkshire Hathaway's 10-Q report, the company held approximately $69.9 billion worth of Apple shares in its fiscal third quarter, down from approximately $84.2 billion in the second quarter. Based on Apple's latest stock price, the number of shares held decreased from about 400 million in the second quarter to about 314 million, with a reduction ratio of 25%.

Media calculations indicate that since the fourth quarter of last year, Buffett has reduced his Apple holdings by 67.2%It is currently unclear what the true motivation behind Berkshire's continuous reduction of its Apple holdings is. Analysts and shareholders have speculated that the reasons may include overvaluation and a reduction in concentration for portfolio management. At one point, Berkshire's holdings in Apple were very large, accounting for half of its stock investment portfolio.

In May of this year, at Berkshire's annual shareholder meeting, Buffett hinted that the reduction in Apple holdings was due to tax reasons, as he speculated that the U.S. government might raise capital gains taxes in the future to offset the rising fiscal deficit. However, the scale of the stock sales has led many to believe that the reduction may not solely be about tax issues.

Suspension of Buybacks

The financial report also showed that Berkshire did not repurchase any shares in the third quarter, compared to $345 million in buybacks in the second quarter and approximately $2.6 billion in the first quarter.

Berkshire's Class A shares have risen 23% so far this year, surpassing the S&P 500 index's increase of 20.1%. The group's stock price reached an all-time high in the third quarter, with a market capitalization exceeding $1 trillion.