By Jonathan Stamp
(Portal) – The decline in U.S. stock prices weighed on Berkshire Hathaway Inc’s second-quarter earnings as the conglomerate, run by billionaire Warren Buffett, reported a $43.8 billion loss on Saturday.
Berkshire still posted an operating profit of nearly $9.3 billion, as gains from reinsurance and BNSF railroad offset fresh losses at auto insurer Geico, where parts shortages and higher used-car prices drove accident claims higher.
Rising interest rates and dividend payouts helped insurance companies generate more money from investments, while the stronger US dollar boosted gains on 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 as “neutral.”
“Companies are doing well despite higher interest rates, inflationary pressures and geopolitical concerns,” he said. “It gives me confidence in the company when there is a recession.”
Berkshire also slowed buying its shares, including its own, even though it still had $105.4 billion in cash to deploy.
Investors watch 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.
These entities include fixed earners such as the eponymous 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 Cathy Seifert, an analyst with CFRA Research with a “hold” rating on Berkshire. “Many companies are enjoying improved demand, but they are not immune to higher input costs from inflation.”
In its quarterly report, Berkshire said “significant supply chain disruptions and higher costs persist” as new COVID-19 variants emerge and due to geopolitical conflicts, including the Russian invasion of Ukraine.
However, the direct losses were not significant, despite higher material, shipping and labor costs.
Net income suffered from Berkshire’s $53 billion in losses from investments and derivatives, including declines of more than 21% at 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 and sell anything.
Buffett is telling investors to ignore the volatility, and Berkshire will make money if its 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.
“It shows the volatile nature of markets,” said Tom Russo, a partner at Gardner, Russo & Quinn in Lancaster, Pa., which invests more than $8 billion, 17% of which is in Berkshire. “Things are business as usual at Berkshire Hathaway.”
The Standard & Poor’s 500 fell 16% in the quarter.
Berkshire’s quarterly net loss was $29,754 per Class A share, compared to net income of $28.1 billion, or $18,488 per Class A share, a year ago.
Operating income of $9.28 billion, or about $6,326 per Class A share, increased 39% from $6.69 billion a year earlier.
This included $1.06 billion in foreign exchange gains on foreign debt. Revenue rose 10% to $76.2 billion.
Geico suffered a $487 million pretax underwriting loss, its fourth straight quarterly loss.
“All car insurers are struggling with claims cost inflation,” said Seifert. “Geico has been less successful than others in enforcing rate increases and retaining customers.”
The loss was more than offset by a pre-tax income of $976 million in property-casualty reinsurance and a 56 percent increase in after-tax income from insurance investments to $1.91 billion.
BNSF’s profit rose 10%, with higher earnings per car from fuel surcharges partially offsetting lower freight volume, while Berkshire Hathaway Energy’s profit rose 4%.
Berkshire repurchased just $1 billion of its own stock, compared to $3.2 billion in the first quarter and compared to $51.7 billion in 2020 and 2021.
Share purchases of $6.15 billion declined from $51.1 billion in the first quarter, as the company bought larger stakes in oil companies Chevron Corp and Occidental Petroleum Corp.
(Reporting by Jonathan Stempel in New York; Editing by Jason Neely and Diane Craft)