A slide in U.S. stock prices punished Berkshire Hathaway Inc’s second-quarter earnings as the conglomerate run by billionaire Warren Buffett on Saturday reported a loss of $43.8 billion. But Berkshire BRK-BN posted nearly $9.3 billion in operating profit as gains from reinsurance and BNSF railroad offset fresh losses at insurer Geico, where parts shortages and higher used vehicle prices boosted accident claims. Rising interest rates and dividend payments helped insurers generate more money from investments, while a stronger dollar boosted earnings from European and Japanese debt investments. Despite the huge net loss, “the results show Berkshire’s resilience,” said James Shanahan, an analyst at Edward Jones & Co who rates Berkshire “neutral.” “Businesses 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 downturn.” Berkshire also slowed its share buybacks, including its own, although it still had $105.4 billion in cash it could use. Investors closely monitor Berkshire because of Buffett’s reputation and because results from the Omaha, Nebraska-based conglomerate’s dozens of operating units often reflect broader economic trends. These units include fixed incomes such as its namesake energy company, several industrial companies and well-known consumer brands such as Dairy Queen, Duracell, Fruit of the Loom and See’s Candies. “Berkshire is a microcosm of the broader economy,” said Cathy Seifert, an analyst at CFRA Research with a “hold” rating on Berkshire. “Many businesses are enjoying improved demand but are not immune to higher input costs than inflation.” DISTURBANCE PERSISTS In its quarterly report, Berkshire said “significant supply chain disruptions and higher costs remain” as new variants of COVID-19 emerge and due to geopolitical conflicts, including Russia’s invasion of Ukraine. However, he said immediate losses were not significant, despite higher costs for materials, shipping and labor. The 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, Bank of America Corp and American Express Co. Accounting rules require Berkshire to report losses with its results, even if it doesn’t buy or sell anything. Buffett urges investors to ignore the volatility, 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 made $42.5 billion for the full year. “It shows the volatile nature of the markets,” said Tom Russo, a partner at Gardner, Russo & Quinn in Lancaster, Pennsylvania, which has more than $8 billion invested, 17 percent of which is in Berkshire. “It’s business as usual at Berkshire Hathaway.” The Standard & Poor’s 500 fell 16% in the quarter. GEICO IS LOSING Berkshire’s quarterly net loss was equal to $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 included foreign exchange gains of $1.06 billion on foreign debt. Revenue rose 10% to $76.2 billion. Geico posted a loss of $487 million before underwriting taxes, its fourth straight quarterly loss. “All auto insurance companies have faced inflation in claims costs,” Seifert said. “Geico has been less successful than some in getting through rate hikes and retaining customers.” The loss was more than offset by a $976 million pretax gain 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 earnings at Berkshire Hathaway Energy rose 4%. Berkshire repurchased 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 was down from $51.1 billion in the first quarter, when it took large stakes in oil companies Chevron Corp and Occidental Petroleum Corp.
