Gerard Miller | CNBC
As the coronavirus pandemic weighs on operating income and share price, Berkshire Hathaway expanded its share buyback program even further in the third quarter, nearly doubling its record buyback from the second quarter.
The Warren Buffett conglomerate has bought back $ 9 billion of its own shares. This was announced on Saturday in its third quarter earnings report. That's up from $ 5.1 billion in the second quarter, which caused a stir when it was announced and brings Berkshire's total buybacks for 2020 to $ 15.7 billion.
Berkshire repurchased more than $ 2.5 billion in Class A shares and approximately $ 6.7 billion in Class B shares in the quarter. That blew UBS's estimate for a total quarterly buyback of just $ 3.2 billion.
Buffett's buyback frenzy is at a difficult time for his business as the global economy struggles to recover from the coronavirus, which has a direct impact on the company's wholly owned businesses, which include railways, utilities, and insurance.
Berkshire announced that operating income was $ 5.478 billion, down more than 30% from the same period last year. However, the company's net income, responsible for Berkshire's large investments in the public market like Apple, soared more than 82% year over year to $ 30.137 billion.
Apple, Berkshire's largest equity holding, rose more than 26% in the third quarter. Coca-Cola grew by 10.5% during this period. Although Buffett has cautioned investors to ignore these net gains, as the investment gains are unrealized and volatile.
Does Buffett think the stock is cheap?
In his annual letter released earlier this year, Buffett discussed when he and Berkshire vice chairman Charlie Munger would decide to buy back shares.
"Our thought is summed up: Berkshire will only buy back its stock if a) Charlie and I believe they are selling for less than it's worth and b) the company has enough cash left over after the buyback is complete," Buffett wrote . "Over time, we want the number of Berkshire stocks to go down. If the price-to-performance discount (as we estimate) goes up, we will likely become more aggressive in buying stocks. However, we will never prop the stock . " Level."
Buffett also broadly defended the practice at the Berkshire annual meeting in May.
"When the terms are right, it should be obvious to buy back shares too, and there shouldn't be the slightest blemish other than dividends," he said.
Despite a comeback in Berkshire Hathaway Class A shares of nearly 20% in the third quarter, the stock is still way behind the S&P 500 this year. The stock is down 8%, compared to a total return of 10% for the S&P 500.
Buffett's buyback frenzy comes as the Omaha Oracle has made relatively few big moves this year. In late August, Buffett announced that Berkshire owned at least 5% of Japan's five leading retail companies: Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co., and Sumitomo Corp. further important acquisitions this year.
Even after record buybacks this year, Berkshire's cash stacks are still at $ 145.7 billion by the end of the third quarter.
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