Berkshire Hathaway posts $43.8 billion loss as stock holdings tumble

By Jonathan Stempel

(Reuters) -The slide in U.S. inventory costs punished Berkshire Hathaway Inc’s backside line within the second quarter, because the conglomerate run by billionaire Warren Buffett on Saturday reported a $43.8 billion loss.

Berkshire nonetheless generated almost $9.3 billion of working revenue, as beneficial properties from reinsurance and the BNSF railroad offset contemporary losses on the Geico automobile insurer, the place components shortages and better used car costs boosted accident claims.

Rising rates of interest and dividend payouts helped insurance coverage companies generate more cash from investments, whereas the strengthening U.S. greenback boosted revenue from European and Japanese debt investments.

Regardless of the large web loss, “the outcomes present Berkshire’s resilience,” mentioned James Shanahan, an Edward Jones & Co analyst who charges Berkshire “impartial.”

“Companies are performing nicely regardless of greater rates of interest, inflation pressures and geopolitical issues,” he mentioned. “It offers me confidence within the firm if there’s a recession.”

Berkshire additionally slowed purchases of its shares, together with its personal, although it nonetheless had $105.4 billion of money it may deploy.

Traders carefully watch Berkshire due to Buffett’s repute, and since outcomes from the Omaha, Nebraska-based conglomerate’s dozens of working items usually mirror broader financial tendencies.

These items embrace regular earners resembling its namesake vitality firm, a number of industrial firms, and acquainted client manufacturers resembling Dairy Queen, Duracell, Fruit of the Loom and See’s Candies.

“Berkshire is a microcosm of the broader economic system,” mentioned Cathy Seifert, a CFRA Analysis analyst with a “maintain” ranking on Berkshire. “Many companies are having fun with improved demand, however they don’t seem to be resistant to greater enter prices from inflation.”

DISRUPTIONS PERSIST

In its quarterly report, Berkshire mentioned “important disruptions of provide chains and better prices have endured” as new COVID-19 variants emerge and due to geopolitical conflicts together with Russia’s invasion of Ukraine.

But it surely mentioned direct losses haven’t been materials, regardless of greater prices for supplies, delivery and labor.

Internet outcomes suffered from Berkshire’s $53 billion of losses from investments and derivatives, together with declines of greater than 21% in three main holdings: Apple Inc, Financial institution of America Corp and American Specific Co.

Accounting guidelines require Berkshire to report the losses with its outcomes even when it buys and sells nothing.

Buffett urges buyers to disregard the fluctuations, and Berkshire will generate income if shares rise over time.

In 2020, for instance, Berkshire misplaced almost $50 billion within the first quarter because the pandemic took maintain, however made $42.5 billion for the total yr.

“It reveals the fickle nature of markets,” mentioned Tom Russo, a accomplice at Gardner, Russo & Quinn in Lancaster, Pennsylvania, who invests greater than $8 billion, of which 17% is in Berkshire. “It is enterprise as normal at Berkshire Hathaway.”

The Customary & Poor’s 500 fell 16% within the quarter.

GEICO LOSSES

Berkshire’s quarterly web loss was equal to $29,754 per Class A share, and in contrast with a web revenue of $28.1 billion, or $18,488 per Class A share, a yr earlier.

The $9.28 billion of working revenue, or about $6,326 per Class A share, rose 39% from $6.69 billion a yr earlier.

It included $1.06 billion of forex beneficial properties on overseas debt. Income elevated 10% to $76.2 billion.

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

“All auto insurers have been coping with inflation in claims prices,” Seifert mentioned. “Geico has been much less profitable than some at passing by way of fee will increase and retaining prospects.”

The loss was greater than offset by a $976 million pre-tax acquire in property and casualty reinsurance, and a 56% soar in after-tax in insurance coverage funding revenue to $1.91 billion.

Revenue rose 10% at BNSF, with greater income per automobile from gas surcharges partially offsetting decrease freight volumes, whereas revenue from Berkshire Hathaway Vitality rose 4%.

Berkshire repurchased simply $1 billion of its personal inventory, down from $3.2 billion within the first quarter, and in contrast with $51.7 billion in 2020 and 2021.

Its $6.15 billion of inventory purchases fell from $51.1 billion within the first quarter, when it took main stakes in oil firms Chevron Corp and Occidental Petroleum Corp.

(Reporting by Jonathan Stempel in New York; enhancing by Jason Neely and Diane Craft)