Berkshire Hathaway posts $43.8B loss in Q2 as stock holdings tumble

Reuters — The slide in U.S. stock prices punished Berkshire Hathaway Inc.'s bottom line in the second quarter, as the conglomerate run by billionaire Warren Buffett on Saturday reported a $43.8 billion loss.

Berkshire nevertheless generated nearly $9.3 billion of operating profit, as gains from reinsurance and the BNSF railroad offset fresh losses at the Geico car insurer, where parts shortages and higher used vehicle prices boosted accident claims.

Rising interest rates and dividend payouts helped insurance businesses generate more money from investments, while the strengthening U.S. dollar boosted profit from European and Japanese debt investments.

Despite the huge net loss, “the results show Berkshire’s resilience,” said James Shanahan, an Edward Jones & Co. analyst who rates Berkshire “neutral.”

“Businesses are performing well despite higher interest rates, inflation pressures and geopolitical concerns,” he said. “It gives me confidence in the company if there is a recession.”

Berkshire also slowed purchases of its stocks, including its own, though it still had $105.4 billion of cash it could deploy.

Investors closely watch Berkshire because of Mr. Buffett’s reputation and because results from the Omaha, Nebraska-based conglomerate’s dozens of operating units often mirror broader economic trends.

Those units include steady earners such as its namesake energy company, several industrial companies, and familiar 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, a CFRA Research analyst with a “hold” rating on Berkshire. “Many businesses are enjoying improved demand, but they are not immune to higher input costs from inflation.”

In its quarterly report, Berkshire said “significant disruptions of supply chains and higher costs have persisted” as new COVID-19 variants emerge and because of geopolitical conflicts, including Russia’s invasion of Ukraine.

But it said direct losses have not been material, despite higher costs for materials, shipping and labor.

Net results suffered from Berkshire’s $53 billion of losses from investments and derivatives, including declines of more than 21% in three major holdings: Apple Inc., Bank of America Corp. and American Express Co.

Accounting rules require Berkshire to report the losses with its results even if it buys and sells nothing.

Mr. Buffett urges investors to ignore the fluctuations, and Berkshire will make money if stocks rise 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.

The Standard & Poor’s 500 fell 16% in the quarter.

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.

The $9.28 billion of operating profit, or about $6,326 per Class A share, rose 39% from $6.69 billion a year earlier.

It included $1.06 billion of currency gains on foreign debt. Revenue increased 10% to $76.2 billion.

Geico suffered a $487 million pre-tax underwriting loss, its fourth straight quarterly loss.