Berkshire Hathaway posts $43.8 billion loss as stock holdings tumble

Berkshire Hathaway Chairman Warren Buffett walks through the exhibit hall as shareholders gather to hear from the billionaire investor during Berkshire Hathaway Inc’s annual shareholders meeting in Omaha, Nebraska, U.S., on 4 May 2019. REUTERS/Scott Morgan//File Photo

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Aug 6 (Reuters) – Falling U.S. stock prices punished Berkshire Hathaway Inc. (BRKa.N) net income in the second quarter, while the conglomerate led by billionaire Warren Buffett announced a loss of 43.8 billion dollars on Saturday.

Berkshire nonetheless generated nearly $9.3 billion in operating profit, with gains from reinsurance and BNSF Railroad offsetting further losses from auto insurer Geico, where parts shortages and rising prices used vehicles boosted claims.

Rising interest rates and dividend payments helped insurance companies generate more cash from investments, while the stronger US dollar boosted earnings from European and Japanese debt investments.

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Despite the huge net loss, “the results show Berkshire’s resilience,” said James Shanahan, an Edward Jones & Co analyst who calls Berkshire “neutral.”

“Businesses are doing well despite higher interest rates, inflationary pressures and geopolitical concerns,” he said. “It gives me confidence in the company in a recession.”

Berkshire also slowed purchases of its shares, including its own, even though it still had $105.4 billion in cash to deploy.

Investors are watching Berkshire closely because of Buffett’s reputation and the results of the Omaha, Nebraska-based conglomerate’s dozens of operating units, which often reflect broader economic trends.

These units include steady earners such as his namesake energy company, several industrial companies, and familiar consumer brands such as Dairy Queen, Duracell, Fruit of the Loom and See’s Candies.

“Berkshire is a microcosm of the broader economy,” CFRA Research analyst Cathy Seifert said with a “hold” rating on Berkshire. “Many businesses are benefiting from improved demand, but they are not immune to higher input costs due to inflation.”

DISRUPTIONS PERSIST

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 the invasion of the Ukraine by Russia.

But he said the direct losses weren’t significant, despite higher costs for materials, shipping and labor.

Bottom line was hurt by Berkshire’s $53 billion losses on investments and derivatives, including declines of more than 21% in three major holdings: Apple Inc. (AAPL.O)Bank of America Corp and American Express Co (AXP.N).

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 stocks rise over time.

In 2020, for example, Berkshire lost nearly $50 billion in the first quarter as the pandemic took hold, but gained $42.5 billion for the full year.

“It shows the volatile nature of the markets,” said Tom Russo, a partner at Gardner, Russo & Quinn in Lancaster, Pennsylvania, which invests more than $8 billion, 17% of which is in Berkshire. “It’s business as usual at Berkshire Hathaway.”

The Standard & Poor’s 500 (.SPX) fell 16% in the quarter.

GEICO LOSSES

Berkshire’s quarterly net loss was $29,754 per Class A share, and compared with net income 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 in foreign exchange gains on foreign debt. Revenue rose 10% to $76.2 billion.

Geico suffered a pretax underwriting loss of $487 million, its fourth consecutive quarterly loss.

“All auto insurers have faced claims cost inflation,” Seifert said. “Geico has been less successful than others in pushing through rate increases and retaining customers.”

The loss was more than offset by a $976 million pre-tax gain in P&C reinsurance and a 56% increase in after-tax insurance investment income to $1.91 billion.

Profit rose 10% at BNSF, with higher revenue per car from fuel surcharges partially offsetting lower freight volumes, while profit at Berkshire Hathaway Energy rose 4%.

Berkshire repurchased just $1 billion of its own stock, down from $3.2 billion in the first quarter, and down from $51.7 billion in 2020 and 2021.

His $6.15 billion stock purchases fell from $51.1 billion in the first quarter, when he took large stakes in oil companies Chevron Corp and Occidental Petroleum Corp.

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Reporting by Jonathan Stempel in New York; edited by Jason Neely and Diane Craft

Our standards: The Thomson Reuters Trust Principles.

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