Berkshire Hathaway records massive loss of $ 43.8 billion; operational results improve

Berkshire Hathaway Chairman Warren Buffett walks through the exhibit hall as shareholders gather to hear the billionaire investor at Berkshire Hathaway Inc’s Annual Shareholders’ Meeting in Omaha, Nebraska, USA, May 4, 2019. REUTERS / Scott Morgan // Photo file

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Aug 6 (Reuters) – Falling US stock prices punished Berkshire Hathaway Inc’s (BRKa.N) profits in the second quarter as billionaire Warren Buffett-led conglomerate reported a $ 43.8 billion loss on Saturday.

However, Berkshire generated nearly $ 9.3 billion in operating profit, as gains from reinsurance and railroad BNSF offset new losses from auto insurer Geico, where component shortages and rising used vehicle prices increased claims for accidents.

Rising interest rates and dividend payments helped insurance companies generate more money from investments, while the strengthening US dollar boosted profits from investments in European and Japanese debt.

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

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

Berkshire also slowed purchases of its stock, including its own, although it still had $ 105.4 billion in cash to distribute.

Investors are watching Berkshire closely because of Buffett’s reputation and because Omaha’s results, the Nebraska-based conglomerate’s dozen business units often mirror broader economic trends.

These units include steady earnings like its namesake energy company, several industrial companies, and family consumer brands like Dairy Queen, Duracell, Fruit of the Loom, and See’s Candies.

“Berkshire is a microcosm of the larger economy,” said Cathy Seifert, a CFRA Research analyst with a hold rating on Berkshire. “Many companies are enjoying increased demand but are not immune to rising input costs from inflation.”

DISORDERS PERSIST

In its quarterly report, Berkshire said “significant supply chain disruptions and higher costs persist” with the emergence of new variants of COVID-19 and due to geopolitical conflicts, including the Russian invasion of Ukraine.

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

Net results were impacted by Berkshire’s $ 53 billion losses from 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 does not buy or sell anything.

Buffett urges investors to ignore the fluctuations and the Berkshire will make money if the shares rise over time.

In 2020, for example, Berkshire lost nearly $ 50 billion in the first quarter when the pandemic caught on, but earned $ 42.5 billion for the full year.

“It shows the fickle nature of the markets,” said Tom Russo, partner of Gardner, Russo & Quinn in Lancaster, Pennsylvania, which invests more than $ 8 billion, including 17% in Berkshire. “It’s all normal 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 to net income of $ 28.1 billion, or $ 18,488 per Class A share, a year earlier.

Operating income of $ 9.28 billion, or approximately $ 6,326 per Class A share, was up 39% from $ 6.69 billion a year ago.

It included $ 1.06 billion in currency gains on foreign debt. Revenue increased 10% to $ 76.2 billion.

Geico suffered a pre-tax underwriting loss of $ 487 million, its fourth consecutive quarterly loss.

“All auto insurers have had to deal with loss cost inflation,” Seifert said. “Geico has been less successful than others in overcoming rate hikes and retaining customers.”

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

Profit increased 10% at BNSF, with higher auto revenue from fuel surcharges partially offsetting lower transportation volumes, while Berkshire Hathaway Energy’s profit increased 4%.

Berkshire repurchased only $ 1 billion in treasury stock, down from $ 3.2 billion in the first quarter and from $ 51.7 billion in 2020 and 2021.

Its $ 6.15 billion in stock purchases fell from $ 51.1 billion in the first quarter, when it acquired major stakes in oil companies Chevron Corp and Occidental Petroleum Corp.

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Jonathan Stempel’s reportage in New York; editing by Jason Neely and Diane Craft

Our Standards: Thomson Reuters Trust Principles.

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