Warren Buffett’s Berkshire Repurchased a Record $9 Billion of its Shares in Q3

By Luigi Wewege Monday, November 9, 2020

Warren Buffet’s conglomerate Berkshire Hathaway has nearly doubled its stock buyback program in the third quarter as the coronavirus pandemic continues to pressure its operating profit and stock price.

Record Buybacks Despite Pandemic

The company repurchased $9 billion of its shares, according to Berkshire’s third-quarter earnings report released on Saturday. That’s nearly double the $5.1 billion the company bought in the second quarter. Just this year, Berkshire bought back a total of $15.7 billion of its stock.

The conglomerate bought back over $2.5 billion of Class A shares and around $6.7 billion of Class B stock in Q3, compared to the UBS estimate for a total quarterly repurchase of $3.2 billion.

“The market will be encouraged by the buybacks,” CFRA analyst Cathy Seifert said.

“Many companies halted buybacks to preserve resources during the pandemic, though because Berkshire doesn’t pay a dividend the amount it is returning to shareholders pales [a] bit.”

Berkshire’s aggressive buyback initiative is happening amid a challenging period for the global economy, which is striving to bounce back from the pandemic that is hurting Berkshire’s wholly-owned businesses, including railroads, utilities, and insurance.

Buffet’s company reported an operating profit of $5.478 billion — 30% in the red compared to the same period last year. However, Berkshire’s net profit, which accounts for its major investments in public companies, soared over 82% to $30.137 billion year-over-year.

Buffet warned investors not to address those net earnings as the company’s investment returns are still latent and volatile. In Berkshire’s yearly letter published earlier this year, Buffet explained when he and Vice Chairman Charlie Munger would decide to buy back stock.

“Our thinking, boiled down: Berkshire will buy back its stock only if a) Charlie and I believe that it is selling for less than it is worth and b) the company, upon completing the repurchase, is left with ample cash,” Buffett wrote.

“Over time, we want Berkshire’s share count to go down. If the price-to-value discount (as we estimate it) widens, we will likely become more aggressive in purchasing shares. We will not, however, prop the stock at any level.”

While Berkshire’s class A shares bounced back almost 20% in the third quarter, the stock is broadly underperforming the S&P 500 index this year. Berkshire’s shares declined 8%, while the S&P 500 advanced 10%.

Strong Buybacks and New Investments

Back in August, Berkshire repurchased a record amount of its own stock in the second quarter, during the first wave of the coronavirus that battered the conglomerate’s businesses.

Berkshire bought back $5.1 billion of its own shares in May and June, around $4.6 billion of which were Class B stock and around $486.6 million was in Class A shares.

At the time, the buyback was the largest-ever for Berkshire, compared to the $2.2 billion the company repurchased in the fourth quarter of 2019. It is actually slightly higher than what Berkshire repurchased in 2019 in total.

Buffett & Co. were also active during the summer. The conglomerate acquired a 5% stake in each of the top trading companies in Japan — Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co., and Sumitomo Corp. At the time, a 5% stake in each was worth around $6.25 billion.

Buffet said those were long-term investments and added that Berkshire might increase the stakes in any of these trading companies up to 9.9%. The conglomerate said it would not buy a stake in any of these companies higher than 9.9% unless it gets approval from their boards of directors.

“I am delighted to have Berkshire Hathaway participate in the future of Japan and the five companies we have chosen for investment,” said Buffet and added that the trading companies have many worldwide joint ventures.

“I hope that in the future there may be opportunities of mutual benefit.”

Summary

Berkshire Hathaway repurchased more than $9 billion of its stock, nearly double the shares it bought back in the second quarter as the COVID-19 pandemic continues to affect its operations and wholly-owned businesses.

About the Author


Luigi Wewege

Luigi Wewege is the Senior Vice President, and Head of Private Banking at Caye International Bank. Outside of the bank, he serves as an Instructor at the FinTech School which provides online training courses on the latest technological and innovation developments within the financial services industry. Luigi is also the published author of: The Digital Banking Revolution.

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