Berkshire Hathaway Chairman Warren Buffett walks through the exhibit 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 drop in U.S. share prices punished Berkshire Hathaway Inc’s ( BRKa.N ) bottom line in the second quarter as the company run by billionaire Warren Buffett posted a loss of $43.8 billion.
However, Berkshire generated nearly $9.3 billion in operating profit as improvement from reinsurance and BNSF railroad offset a loss at auto insurer Geico, where auto parts shortages and higher vehicle prices increased casualty losses.
Rising interest rates and dividend payouts helped Berkshire’s insurance units generate more cash from investments, while a strengthening U.S. dollar boosted profits from the company’s European and Japanese debt investments.
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Berkshire also slowed its stock purchases, including its own, even though it ended June with $105.4 billion in cash and equivalents it could still use.
“It shows the volatile nature of the markets,” said Tom Russo, a partner at Gardner, Russo & Quinn in Lancaster, Pa., which has more than $8 billion invested, 17 percent of which is in Berkshire. “It’s business as usual at Berkshire Hathaway.”
Investors keep a close eye on Berkshire 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.
Berkshire owns dozens of businesses, including stable earners like the eponymous energy company, several insurers and industrial companies, and familiar consumer brands like Dairy Queen, Duracell, Fruit of the Loom and See’s Candies.
In its quarterly report, Berkshire said “significant supply chain disruptions and higher costs continue” as new variants of COVID-19 emerge and due to geopolitical conflicts, including Russia’s invasion of Ukraine.
But it said direct losses to the company were not material, despite the impact of higher material, shipping and labor costs.
PROFIT SWING
Net results were hurt by Berkshire’s $53 billion in losses from investments and derivatives.
Shares of three major holdings — Apple Inc ( AAPL.O ), Bank of America Corp and American Express Co ( AXP.N ) — fell more than 21 percent, compared with a 16 percent drop in the Standard & Poor’s 500 ( .SPX ).
Accounting rules require Berkshire to report losses with its bottom line even if it doesn’t buy or sell anything.
Buffett is urging investors to ignore the volatility, and Berkshire stands to make money if the stock rises 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.
The quarterly net loss equaled $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.
Berkshire’s operating profit of $9.28 billion, or about $6,326 per Class A share, rose 39% from $6.69 billion, or $4,424 per Class A share, a year earlier. Foreign exchange earnings from foreign debt amounted to $1.06 billion.
Geico’s pretax loss of $487 million was more than offset by a pretax gain of $976 million in property and casualty reinsurance and a 56% jump in after-tax insurance investment income to $1.91 billion.
Profit rose 10% at BNSF, as higher revenue per car from fuel surcharges partially offset lower freight volumes and higher fuel costs, while profit at Berkshire Hathaway Energy rose 4%.
Berkshire bought back just $1 billion of its own stock, down from $3.2 billion in the first quarter and compared with $51.7 billion in 2020 and 2021.
Its $6.15 billion in stock purchases was down from $51.1 billion in the first quarter, when it took major stakes in oil companies Chevron Corp and Occidental Petroleum Corp.
Berkshire expects to complete its $11.6 billion acquisition of insurer Alleghany Corp ( YN ) in the fourth quarter.
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Reporting by Jonathan Stemple in New York; editing by Jason Neely and Diane Craft
Our standards: The Thomson Reuters Trust Principles.
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