Falling US stock prices hurt Berkshire Hathaway Inc’s second-quarter results, as the conglomerate led by billionaire Warren Buffett reported a $43.8 billion loss on Saturday.
However, Berkshire BRK-BN generated almost $9.3 billion in operating profit, as gains from BNSF rail and reinsurance offset new losses at auto insurer Geico, where parts shortages and higher used-vehicle prices They boosted accident claims.
Rising interest rates and dividend payments helped insurance companies generate more money from investments, while a stronger US dollar boosted gains on investments in European and Japanese debt.
Despite the huge net loss, “the results show Berkshire’s resilience,” said James Shanahan, an analyst at Edward Jones & Co who rates Berkshire “neutral.”
“Businesses are doing well despite higher interest rates, inflationary pressures and geopolitical concerns,” he said. “It gives me confidence in the company if there is a recession.”
Berkshire also slowed purchases of its shares, including its own, though it still had $105.4 billion in cash to deploy.
Investors are watching Berkshire closely because of Buffett’s reputation and because the results of the Omaha, Nebraska-based conglomerate’s dozens of operating units often reflect broader economic trends.
Those units include steady earners like his namesake energy company, various industrial companies, and familiar consumer brands like Dairy Queen, Duracell, Fruit of the Loom and See’s Candies.
“Berkshire is a microcosm of the broader economy,” said Cathy Seifert, an analyst at CFRA Research with a “hold” rating on Berkshire. “Many companies are enjoying improved demand, but are not immune to higher input costs due to inflation.”
In its quarterly report, Berkshire said “significant disruptions to supply chains and higher costs have persisted” as new variants of COVID-19 emerge and due to geopolitical conflicts, including Russia’s invasion of Ukraine.
But he said the direct losses have not been material, despite higher costs for materials, shipping and labor.
Net results were hit by Berkshire’s $53 billion losses in investments and derivatives, including declines of more than 21% in three major holdings: Apple Inc, Bank of America Corp and American Express Co.
Accounting rules require Berkshire to report losses with its results, even if it doesn’t buy or sell anything.
Buffett urges investors to ignore fluctuations and Berkshire will make money if shares rise over time.
In 2020, for example, Berkshire lost nearly $50 billion in the first quarter as the pandemic took hold, but made $42.5 billion for the full year.
“It shows the fickle nature of the markets,” said Tom Russo, a partner at Gardner, Russo & Quinn in Lancaster, Pennsylvania, who invests more than $8 billion, 17% of which is in Berkshire. “Everything remains the same at Berkshire Hathaway.”
The Standard & Poor’s 500 fell 16% in the quarter.
Berkshire’s quarterly net loss equaled $29,754 per Class A share, compared with a net profit of $28.1 billion, or $18,488 per Class A share, a year earlier.
Operating profit of $9.28 billion, or about $6,326 per Class A share, was up 39% from $6.69 billion a year earlier.
It included $1.06 billion of foreign exchange gains on foreign debt. Revenue increased 10% to $76.2 billion.
Geico suffered a pretax technical loss of $487 million, its fourth consecutive quarterly loss.
“All auto insurers have been dealing with inflation in claims costs,” Seifert said. “Geico has been less successful than some in passing on rate increases and retaining customers.”
The loss was more than offset by a $976 million pre-tax gain on property and casualty reinsurance, and a 56% increase in after-tax insurance investment income to $1.91 billion.
Earnings rose 10% at BNSF, with higher revenue per car due to fuel surcharges partially offsetting lower cargo volumes, while Berkshire Hathaway Energy’s earnings rose 4%.
Berkshire bought back just $1 billion of its own shares, down from $3.2 billion in the first quarter, and compared with $51.7 billion in 2020 and 2021.
His $6.15 billion in share purchases fell from $51.1 billion in the first quarter, when he acquired major stakes in oil companies Chevron Corp and Occidental Petroleum Corp.
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