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) – Falling U.S. stock prices hit Berkshire Hathaway Inc’s ( BRKa.N ) second-quarter results as the conglomerate led by billionaire Warren Buffett posted a loss of 43,800 on Saturday millions of dollars.
However, Berkshire posted nearly $9.3 billion in operating profit as gains from reinsurance and BNSF railroad offset fresh losses at auto insurer Geico, where parts shortages and prices higher used vehicle prices increased accident claims.
Rising interest rates and dividend payments helped insurance companies generate more money from investments, while a stronger 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 rates Berkshire “neutral.”
“Companies are performing well despite higher interest rates, inflationary pressures and geopolitical concerns,” he said. “It gives me confidence in the company if there’s a recession.”
Berkshire also slowed its share buybacks, including its own, although it still had $105.4 billion in cash it could 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 units include stable incomers like its namesake energy company, various industrial companies and familiar consumer brands like Dairy Queen, Duracell, Fruit of the Loom and See’s Candies.
“Berkshire is a microcosm of the broader economy,” said CFRA Research analyst Cathy Seifert with a “hold” rating on Berkshire. “Many businesses are enjoying improved demand, but are not immune to higher input costs from inflation.”
THE PERSISTENIES
In its quarterly report, Berkshire said “significant supply chain disruptions and higher costs have persisted” as new variants of COVID-19 emerge and due to geopolitical conflicts, including Russia’s invasion of Ukraine.
But he said the direct losses have not been material, despite higher costs for materials, shipping and labor.
Net results were hit by Berkshire’s $53 billion in losses from investments and derivatives, including declines of more than 21 percent 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 earnings, even if it doesn’t buy or sell anything.
Buffett urges investors to ignore the fluctuations, and Berkshire will 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 earned $42.5 billion for the full year.
“It shows the fickle nature of the markets,” said Tom Russo, a partner at Gardner, Russo & Quinn in Lancaster, Pennsylvania, which invests more than $8 billion, 17 percent of which is in Berkshire. “It’s business as usual 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 with a 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, was up 39% from $6.69 billion a year earlier.
It includes $1.06 billion of foreign exchange gains on foreign debt. Revenue rose 10% to $76.2 billion.
Geico posted a pretax underwriting loss of $487 million, its fourth straight quarterly loss.
“All auto insurers have been dealing with claims cost inflation,” Seifert said. “Geico has been less successful than some in passing rate increases and retaining customers.”
The loss 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.
Profits rose 10% at BNSF, with higher revenue per car from fuel surcharges partially offsetting lower freight volumes, while profits 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 fell from $51.1 billion in the first quarter, when it took major stakes in oil majors Chevron Corp and Occidental Petroleum Corp.
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Reporting by Jonathan Stempel in New York; edited by Jason Neely and Diane Craft
Our standards: the Thomson Reuters Trust Principles.