Warren Buffett’s Berkshire Hathaway increases cash pile to $128bn

Sage of Omaha has struggled to find large acquisitions to boost returns

Richard Henderson and Jennifer Ablan

Warren Buffett, Chairman and CEO of Berkshire Hathaway, speaks to reporters during a tour of the CHI Health convention center where various Berkshire Hathaway companies display their products, before presiding over the annual shareholders meeting in Omaha, Neb., Saturday, May 4, 2019. An estimated 40,000 people are expected in town for the event, where Buffett and his Vice Chairman Charlie Munger will preside over the meeting and spend hours answering questions. (AP Photo/Nati Harnik)
Warren Buffett has gone nearly four years since completing a major acquisitio © AP

Berkshire Hathaway increased its cash pile to a record $128bn in the third quarter, as Warren Buffett struggled to find large acquisitions to boost Berkshire’s returns.

Mr Buffett has gone nearly four years since completing a major acquisition, forcing him and Charlie Munger, his longtime business partner and vice-chairman of Berkshire, to look elsewhere to invest their cash hoard.

Berkshire’s holding of cash or short-term Treasuries marks an increase from the $122bn it held in the prior quarter, the company said on Saturday as it reported third-quarter earnings.

Bill Smead, chief executive of Smead Capital Management, said Mr Buffett had not found an attractive M&A target and could be building the “monstrous cash hoard in the event Buffett or Charlie Munger — the masterminds of Berkshire — go into the hospital”.

Mr Buffett is 89 years old and Mr Munger is 95 years old.

Mr Smead said Mr Buffett could also be waiting to deploy Berkshire’s cash in the event the stock market faced a bear market akin to the 1987 crash.

As the cash pile grows, so too do profits from its vast business empire. The group posted a record $7.8bn in quarterly operating profit in the third quarter, a 14 per cent rise from the same period last year. These profits reflect earnings from Berkshire Hathaway’s businesses, but do not include paper gains from its investment holdings, which fluctuate with the stock market.

When these are included, the group’s overall profits were reported to have eased to $16.5bn in the quarter from $18.5bn for the same period in 2018.

“These are very strong results reflective of a strong domestic economy despite all of these challenges,” Jim Shanahan, an analyst with Edward Jones, said. The gains were driven by strong results from its railroad, utilities and insurance companies, he said.

Berkshire bought back about $700m of its own shares in the third quarter, bringing its total buybacks for the year to $2.8bn. The Omaha, Nebraska, conglomerate changed its buyback policy last year, and some shareholders are frustrated that the company hasn’t spent significantly more cash repurchasing its stock.

In addition to Berkshire’s portfolio of businesses, the group has expansive stock holdings dominated by shares in financial companies. American Express and Wells Fargo are among the group’s biggest holdings, while Apple stock, which Berkshire first bought in 2017, is now the largest.

The value of Berkshire’s shares in the iPhone maker grew $7bn to $57bn in the third quarter as Apple stock rose. Further gains by Apple in the fourth quarter so far have pushed that holding to $65bn, marking a $25bn paper gain for Berkshire this year alone.

In his annual letter to shareholders earlier this year, Mr Buffett said “sky-high” prices meant the likelihood of putting the excess money to work in a large deal was “not good.”

“That disappointing reality means that 2019 will likely see us again expanding our holdings of marketable equities,” he said. “We continue, nevertheless, to hope for an elephant-sized acquisition.”

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