Warren Buffett’s firm reports $2.7B loss on investment drop
OMAHA. Neb. Warren Buffett’s firm reported a loss of $2.7 billion due to a decrease in paper value in its investment portfolio. However, most of its operating businesses performed well, with the notable exception Geico.
Berkshire Hathaway reported Saturday a loss of $2.7 billion or $1 ,832 for Class A shares. That’s down from a $10.3 billion profit, or $6,882 per Class A share, a year ago when the stock market was soaring. In the second quarter of this year, Berkshire reported a $44 billion loss.
Buffett believes Berkshire’s operating income is a better indicator of the company’s performance since they exclude investment gains or losses which can vary from quarter to quarter. By that measure, Berkshire’s operating earnings jumped 20% to $7. 76 billion, or $5,293. 83 per Class A share. This is an increase of $6. 47 billion, or $4,330. 60 per Class A share.
The four analysts surveyed by FactSet expected Berkshire to report operating earnings per Class A share of $4,205. 82 on average.
Berkshire said its revenue grew 9% to $76.9 billion.
Most of Berkshire’s eclectic assortment of more than 90 companies performed well during the quarter, but the key insurance unit of Geico reported a pre-tax underwriting loss of $759 million as the cost of auto claims soared along with the prices of used cars and car parts. Soaring costs have hampered Geico’s progress since the second half last year.
Geico increased its rates by 5.4% in the quarter but it was almost completely offset by losing 4.6% of its customers.
Another notable weakness in the results was that BNSF railroad saw its profit drop by 6% to $1. 44 billion as it hauled 5% less freight the cost of fuel soared and salary costs were adjusted up to reflect the raises railroads have agreed to pay their workers in tentative agreements with their 12 unions. BNSF’s peers reported substantial increases in profits during the quarter.
Berkshire also has a number businesses that are closely tied to the housing market, which has seen a significant decline as mortgage rates have more than doubled in the past year. In the coming months, Berkshire’s network of real estate brokers as well as its Clayton Homes manufactured housing unit may suffer.
CFRA Research analyst Cathy Seifert stated that in a time such as this, when many Berkshire businesses are facing difficulties, it would be nice if they shared more information about how they are responding. Berkshire has been posting its quarterly report online for years without hosting a conference call to discuss it. Investors are left to make their own conclusions about the future because Berkshire doesn’t say much about what it expects.
Berkshire is well-known for its decentralized approach, which allows its businesses to run themselves on an everyday basis.
” It’s fine to let things run smoothly when they are. Seifert stated that investors should be more specific when you get into a more challenging operating environment. “And I personally find that problematic.”
But Edward Jones analyst Jim Shanahan said he thought the results were good overall, and the utility unit was a particularly strong contributor. Berkshire’s utilities, which includes MidAmerican Energy, PacifiCorp and PacifiCorp, contributed $1. 59 billion in profits, up 6% over last year.
Berkshire reported that its insurance units suffered tax losses of $2.7 Billion due to Hurricane Ian. This compares to $1.7 billion in catastrophic losses last year due to Hurricane Ida, major floods in Europe, and $1.7 billion in the same period last year.
Berkshire is sitting on nearly $109 billion cash even though it has been actively investing in the stock market this year, including putting more than $51 billion to work in the first quarter. That is up slightly from the $105.4 billion it held at the end of the second quarter because Berkshire’s businesses generated more cash than it spent. Although after the end of the third quarter, Berkshire did spend $11.6 billion in October to complete its acquisition of the Alleghany insurance conglomerate.
Buffett’s biggest stock investments this year included buying roughly $12 billion worth of Occidental Petroleum stock and about $20 billion worth of Chevron shares. Besides those oil sector investments, Berkshire also bought more than 120 million shares of printer maker HP Inc. and bet big that Microsoft’s acquisition of Activision Blizzard will go through by buying nearly 70 million shares of the video game maker. Shanahan stated that Berkshire was a net buyer for stocks of $3.7 billion during the third quarter. About $2 billion went to Occidental purchases, which have been disclosed. Berkshire also purchased $1. 05 billion of its own shares.
Berkshire’s investment portfolio also includes major stakes in Apple, American Express, Bank of America and Coca-Cola stock.
The Omaha, Nebraska-based conglomerate’s businesses include manufacturing companies like Precision Castparts, a specialist chemical maker Lubrizol, and retail firms like See’s Candy and Dairy Queen, as well as companies like Helzberg Diamonds, and other companies such as NetJets.
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