By Jonathan Stempel
– Warren Buffett’s Berkshire Hathaway Inc on Saturday posted a $2.69 billion third-quarter loss as rising inflation, falling inventory investments and a giant loss from Hurricane Ian offset enchancment in lots of the conglomerate’s companies.
Working revenue nonetheless rose by 20%, topping analyst forecasts.
Berkshire benefited from elevated demand and costs for brand new residence gross sales, industrial merchandise and vitality, whereas the U.S. Federal Reserve’s inflation-fighting marketing campaign helped Berkshire generate extra earnings from insurance coverage investments.
“On stability, outcomes have been robust and demonstrated resilience given the impression of inflation, increased rates of interest and provide chain challenges,” stated Jim Shanahan, an Edward Jones & Co analyst with a “purchase” ranking on Berkshire.
Buffett’s firm took benefit of declining fairness markets so as to add extra shares to its $306 billion portfolio, shopping for a internet $3.7 billion and constructing a now 20.9% stake in Occidental Petroleum Corp.
Berkshire additionally purchased again extra of its personal inventory however was cautious, repurchasing $1.05 billion, just like the second quarter. It additionally purchased again some inventory in October.
The conservatism could mirror the “vital disruptions” that Berkshire stated its a number of dozen companies nonetheless see from provide chains and occasions past their management, such because the COVID-19 pandemic and Russia-Ukraine battle.
Berkshire additionally stated rising prices from gas and accidents damage respective outcomes at two of its best-known companies, the BNSF railroad and Geico auto insurer.
Cathy Seifert, a CFRA Analysis analyst with a “maintain” ranking for Berkshire, stated the corporate could also be “at an inflection level, not not like the financial system,” the place it might want to include prices to organize for slowing demand and a potential recession.
“Backside line, this was a wholesome quarter, however one must be involved over its trajectory over the subsequent 12 months,” Seifert stated.
HUNKERINGDOWN
The quarterly internet loss equaled $1,832 per Class A share, and in contrast with a revenue of $10.34 billion, or $6,882 per share, a yr earlier.
Outcomes included $10.45 billion of losses from investments and derivatives, because the inventory costs of many giant Berkshire investments apart from Apple Inc fell.
Accounting guidelines require Berkshire to report such adjustments even when it buys and sells nothing. This causes giant quarterly swings in outcomes that Buffett says are normally meaningless.
Working revenue, in the meantime, rose to $7.76 billion, or about $5,294 per Class A share, from $6.47 billion, or $4,331 per share, a yr earlier.
Outcomes improved regardless of a $2.7 billion after-tax loss from Ian, a powerful Class 4 hurricane that slammed into Florida on Sept. 28. Income rose 9%, whereas bills rose 7%.
“The priority is which of the rising bills are going to develop into extra everlasting,” stated Tom Russo, a companion at Gardner, Russo & Quinn in Lancaster, Pennsylvania, who invests greater than $1 billion in Berkshire.
Russo stated outcomes mirror “an enterprise hunkering down and conserving assets whereas it awaits giant ‘elephants,’” a time period Buffett makes use of to explain giant acquisitions.
Berkshire ended September with $109 billion of money, up from $105.4 billion in June, although it spent $11.6 billion final month to purchase the Alleghany Corp insurance coverage enterprise.
A strengthening U.S. greenback led to $858 million of third-quarter positive factors from Berkshire’s non-dollar-denominated debt.
In the meantime, the Fed’s aggressive elevating of short-term rates of interest fueled a 21% enhance in insurance coverage funding earnings, with earnings from U.S. Treasuries and different debt almost tripling to $397 million.
BNSF, GEICO
Revenue at BNSF fell 6% as bills jumped by one-third, together with will increase of 27% for compensation and 80% for gas, a few of which was handed on to prospects by surcharges.
Geico suffered its fifth straight quarterly underwriting loss, dropping $759 million earlier than taxes, reflecting extra frequent and dear accident claims, rising used automotive costs and automotive elements shortages. Written premiums barely modified.
Seifert stated Geico, run by Berkshire portfolio supervisor Todd Combs, has fared worse than many different auto insurers, and should undergo additional erosion in underwriting if its “restricted income progress and claims value inflation” persists.
Offsetting the declines have been revenue will increase of 6% from Berkshire Hathaway Power and 20% from manufacturing, service and retail companies together with Clayton Properties, although rising mortgage charges will possible lower into future residence gross sales.
Berkshire additionally stated rising charges could considerably decrease any discount in shareholder fairness ensuing from an upcoming accounting change for some insurance coverage contracts.
Buffett, 92, has run Berkshire since 1965.
Traders carefully watch Berkshire due to his repute, and since outcomes usually mirror broader financial traits.
The corporate additionally owns acquainted client manufacturers similar to Dairy Queen, Duracell, Fruit of the Loom and See’s Candies.
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