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Buffett’s company announces $44 billion loss as portfolio value plummets

OMAHA, Neb. (AP) – Warren Buffett’s company posted a $43.76 billion loss in the second quarter as the paper value of its investments tumbled, but Berkshire Hathaway’s many operating companies generally performed well. which suggests that the overall economy is resisting pressure from inflation and increasing interest rates.

Berkshire said on Saturday that a largely unrealized decline of $53 billion in the value of its investments forced it to report a loss of nearly $44 billion, or $29,754 per Class A share. down from $28.1 billion, or $18,488 per Class A share, a year ago.

Share prices of three of Berkshire’s biggest investments – Apple, American Express and Bank of America – all fell significantly during the second quarter. But those stocks all rebounded in the third quarter, meaning Berkshire’s portfolio is already worth more than it was at the end of the quarter.

Buffett has long said he believes Berkshire’s operating profits are a better measure of company performance because they exclude investment gains and losses, which can vary widely from quarter to quarter. other. By that measure, Berkshire’s earnings rose significantly to $9.28 billion, or $6,312.49 per Class A share, from $6.69 billion a year ago, or $4,399. $92 per Class A share.

The four analysts polled by FactSet expected Berkshire to report operating income per Class A share of $4,741.64.

Besides investments, Berkshire owns more than 90 companies. Berkshire said operating profits were up across all of its major units, including its insurance companies, major utilities and railroad BNSF. Strong results at most of its companies offset a $487 million pretax underwriting loss at Geico, which posted higher auto claims losses due to rising vehicle values ​​and continued auto parts shortages. .

CFRA Research analyst Cathy Seifert said Geico’s results suggest the auto insurer is having a harder time raising rates to offset those higher costs than its peers at Progressive and Allstate, so “I really think that it deserves to be watched”.

Berkshire is often seen as a microcosm of the broader economy, as its eclectic set of manufacturing, retail, insurance, utilities and service businesses span many different industries, and the profits of Berkshire tend to follow whatever the economy does. Edward Jones analyst Jim Shanahan said Berkshire’s strong operating results suggest many companies have been able to raise prices enough to offset soaring inflation, and even if higher interest rates are hurting Berkshire’s auto dealership network and its manufactured homes division, other parts of the business. enjoy higher rates on investments.

“It’s a company that has its tentacles in all sectors of the economy. To show such strength in revenue and earnings across the franchise, it gives me a lot of confidence that the economy as a whole is doing quite well,” Shanahan said.

Berkshire said its revenue rose more than 10% to $76.2 billion in the quarter as many of its businesses raised prices.

Berkshire said it had $105.4 billion in cash at the end of the quarter, little changed from the reported $106 billion at the end of the first quarter. This indicated that Buffett was not buying as many stocks in the second quarter, although he said he invested several billion in Occidental Petroleum. In the first three months of the year, Berkshire spent more than $51 billion on stocks.

Berkshire spent $1 billion buying back its own shares during the quarter, but the pace of those buybacks slowed significantly. Berkshire repurchased $3.2 billion of its stock in the first quarter and $27 billion last year. Before this year’s flurry of stock purchases like oil producers Occidental and Chevron and printer maker HP Inc., buyouts had been Buffett’s biggest investment in recent years as he struggled to find major acquisitions.

Berkshire’s acquisition drought ended this year when it signed an $11.6 billion deal to acquire insurance conglomerate Alleghany.

An interesting piece of information disclosed at the bottom of Berkshire’s Securities and Exchange Commission filing is that the company purchased Berkshire Vice Chairman Greg Abel’s stake in Berkshire’s utilities unit for $870 million in June. . Abel is expected to take over as CEO of Berkshire once Buffett is unavailable, although the legendary 91-year-old investor has no plans to retire. The filing offered no indication of what Abel would do with the money, including whether he would reinvest it in Berkshire stock.

Some investors have called on Abel to increase his investment in Berkshire before taking over as CEO, so that he has a bigger stake in the company’s future. As of last report, Abel held five Class A shares and nearly 2,400 Class B shares. Compare that with Buffett, who owns 229,016 A shares and 276 B shares to give him control over 30% of the shares with rights. Berkshire poll.

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