Buffett’s Berkshire lost money in stocks, Hurricane Ian offset rising demand

Nov 5 (Reuters) – Warren Buffett’s Berkshire Hathaway Inc (BRKa.N) on Saturday posted a $ 2.69 billion third quarter loss as rising inflation, falling stock investments and a large loss from Hurricane Ian offset the improvement in many of the conglomerate’s businesses.

However, operating profit rose by 20%, topping analysts’ forecasts.

Berkshire benefited from increased demand and prices for sales of new homes, industrial products and energy, while the Federal Reserve’s inflation-fighting campaign helped Berkshire generate more income from insurance investments.

“On balance, the results were strong and showed resilience given the impact of inflation, high interest rates and supply chain challenges,” said Jim Shanahan, an analyst at Edward Jones & Co. with a “buy” rating on Berkshire.

Buffett’s company took advantage of the declining stock market to add more stocks to its $306 billion portfolio, netting $3.7 billion in purchases and building a 20.9% stake in Occidental Petroleum Corp. (OXY.N).

Berkshire also bought back more of its own shares but cautiously, buying back $1.05 billion, the same as in the second quarter. Also bought back some shares in October.

The conservatism could indicate “significant disruption” that Berkshire said its dozens of businesses are still seeing from supply chains and events beyond their control, such as the COVID-19 pandemic and the Russia-Ukraine conflict.

Berkshire also said rising costs from fuel and accidents hurt earnings at its two best-known businesses, BNSF railroad and Geico auto insurer.

Cathy Seifert, a CFRA Research analyst with a “hold” rating for Berkshire, said the company may be “at an inflection point, unlike the economy,” where it needs to contain costs to prepare for slowing demand and a possible recession.

“Bottom line, this was a healthy quarter, but we have to be concerned about its trajectory over the next 12 months,” Seifert said.

VISIT

The quarterly net loss equaled $1,832 per Class A share, and compared to a profit of $10.34 billion, or $6,882 per share, a year earlier.

The results included $10.45 billion in losses from investments and derivatives, as the stock prices of many of Berkshire’s big investments other than Apple Inc. (AAPL.O) fell.

Accounting rules require Berkshire to report such changes even if it buys and sells nothing. This causes large quarterly swings in results that Buffett says are usually meaningless.

Meanwhile, operating profit rose to $7.76 billion, or about $5,294 per Class A share, from $6.47 billion, or $4,331 per share, a year earlier.

Results increased despite the after-tax loss of $2.7 billion from Ian, a strong Category 4 hurricane that slammed into Florida on September 28. Income increased by 9%, while expenses increased by 7%.

“It’s a question of which of the cost increases will be more permanent,” said Tom Russo, a partner at Gardner, Russo & Quinn in Lancaster, Pennsylvania, who has invested more than $1 billion in Berkshire.

Russo said the results reflect “a company that is spending and saving resources while waiting for the big ‘elephant,'” a term Buffett uses to describe large acquisitions.

Berkshire ended September with $109 billion in cash, up from $105.4 billion in June, despite spending $11.6 billion last month to buy Alleghany Corp.’s insurance business.

A strengthening US dollar led to $858 million third quarter gains from Berkshire’s non-dollar-denominated debt.

Meanwhile, the Fed’s aggressive increase in short-term interest rates led to a 21% increase in insurance investment income, with income from US Treasuries and other debt nearly tripling to $397 million.

BNSF, GEICO

Profits at BNSF fell 6% as costs jumped by a third, including increases of 27% for compensation and 80% for fuel, some of which were passed on to customers through surcharges.

Geico suffered its fifth straight quarterly underwriting loss, losing $759 million before taxes, reflecting more frequent and costly accident claims, rising used car prices and a shortage of auto parts. written premiums barely changed.

Seifert said Geico, run by Berkshire portfolio manager Todd Combs, has fared worse than many other auto insurers, and could suffer further erosion in underwriting if its “limited revenue growth and claims cost inflation” persists.

Offsetting the decline was a 6% increase in profits from Berkshire Hathaway Energy and 20% from manufacturing, service and retail businesses including Clayton Homes, although rising mortgage rates are likely to dampen future home sales.

Berkshire also said that rate hikes could significantly lower the reduction in shareholders’ equity resulting from upcoming accounting changes for some insurance contracts.

Buffett, 92, has run Berkshire since 1965.

Investors monitor Berkshire because of its reputation, and because its results often mirror broader economic trends.

The company also owns familiar consumer brands such as Dairy Queen, Duracell, Fruit of the Loom and See’s Candies.

Reporting by Jonathan Stempel in New York; Editing by Mark Potter, Chizu Nomiyama and Jonathan Oatis

Our standards: Thomson Reuters Trust Principles.

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