Berkshire Hathaway posted a $43.8 billion loss as stock holdings plunged

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

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Aug 6 (Reuters) – A slump in US stock prices has penalized Berkshire Hathaway (BRKa.N) The bottom line is in the second quarter, as the group run by billionaire Warren Buffett on Saturday reported a $43.8 billion loss.

However, Berkshire generated nearly $9.3 billion in operating profit, as gains from reinsurance and rail BNSF offset new losses for auto insurer Geico, as parts shortages and higher prices for used cars drove accident claims.

Higher interest rates and dividends helped insurers generate more money from investments, while a stronger US dollar boosted earnings from European and Japanese debt investments.

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“The results show Berkshire’s resilience,” said James Shanahan, an analyst at Edward Jones & Associates who classified Berkshire as “neutral,” despite the huge net loss.

“Business is doing well despite higher interest rates, inflation pressures and geopolitical concerns,” he said. “It gives me confidence in the company if there is a recession.”

Berkshire has also slowed its purchases of its own stock, including its own, even though it still has $105.4 billion in cash to spread out.

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

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These units include fixed income earners such as the namesake energy company, several industrial companies, and well-known consumer brands such as Dairy Queen, Duracell, Fruit of the Loom and See’s Candies.

“Berkshire is a microcosm of the broader economy,” said Kathy Seifert, CFRA Research Analyst with a “hold” rating on Berkshire. “Many companies are enjoying better demand, but they are not immune to rising input costs from inflation.”

turmoil continues

Berkshire said in its quarterly report that “significant disruptions to supply chains and rising costs have continued” with the emergence of new variants of COVID-19 and due to geopolitical conflicts including the Russian invasion of Ukraine.

But it said the direct losses were not material despite rising material, shipping and labor costs.

Net results suffered from Berkshire’s $53 billion loss 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 their results even if they buy and sell nothing.

Buffett is urging investors to ignore volatility, 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 spread, but made $42.5 billion for the full year.

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

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

Gekko losses

Berkshire’s quarterly net loss was $29,754 per Class A share, compared to 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, is up 39% from $6.69 billion a year earlier.

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

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

“All auto insurance companies deal with claims cost inflation,” Seifert said. “Geico has been less successful than some in passing price increases and retaining customers.”

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

Profits were up 10% at BNSF, with higher revenue per vehicle from fuel surcharges partially offsetting lower freight volumes, while Berkshire Hathaway Energy’s profit was up 4%.

Berkshire repurchased just $1 billion of its stock, down from $3.2 billion in the first quarter, and compared to $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 large stakes in oil companies Chevron Corp and Occidental Petroleum Corp.

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(Jonathan Stemple reports) in New York. Editing by Jason Neely and Diane Kraft

Our criteria: Thomson Reuters Trust Principles.

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