Warren Buffett’s Berkshire Hathaway (NYSE:BRKa) Inc on Saturday posted a $2.69 billion third-quarter loss as rising inflation, falling inventory investments and an enormous loss from Hurricane Ian offset enchancment in most of the conglomerate’s companies.
Working revenue nonetheless rose by 20%, topping analyst forecasts.
Berkshire benefited from elevated demand and costs for brand spanking new dwelling 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 steadiness, outcomes have been robust and demonstrated resilience given the influence of inflation, larger rates of interest and provide chain challenges,” mentioned Jim Shanahan, an Edward Jones & Co analyst with a “purchase” score 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 (NYSE:OXY).
Berkshire additionally purchased again extra of its personal inventory however was cautious, repurchasing $1.05 billion, much like the second quarter. It additionally purchased again some inventory in October.
The conservatism might replicate the “vital disruptions” that Berkshire mentioned 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 mentioned 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” score for Berkshire, mentioned the corporate could also be “at an inflection level, not in contrast to the financial system,” the place it might want to include prices to arrange for slowing demand and a potential recession.
“Backside line, this was a wholesome quarter, however one must be involved over its trajectory over the following 12 months,” Seifert mentioned.
HUNKERING DOWN
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 aside from Apple Inc (NASDAQ:AAPL) fell.
Accounting guidelines require Berkshire to report such modifications 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 robust 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 grow to be extra everlasting,” mentioned Tom Russo, a companion at Gardner, Russo & Quinn in Lancaster, Pennsylvania, who invests greater than $1 billion in Berkshire.
Russo mentioned outcomes replicate “an enterprise hunkering down and conserving sources 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 (NYSE:Y) Corp insurance coverage enterprise.
A strengthening U.S. greenback led to $858 million of third-quarter features from Berkshire’s non-dollar-denominated debt.
In the meantime, the Fed’s aggressive elevating of short-term rates of interest fueled a 21% improve 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 via surcharges.
Geico suffered its fifth straight quarterly underwriting loss, dropping $759 million earlier than taxes, reflecting extra frequent and expensive accident claims, rising used automotive costs and automotive elements shortages. Written premiums barely modified.
Seifert mentioned Geico, run by Berkshire portfolio supervisor Todd Combs, has fared worse than many different auto insurers, and should endure 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 Vitality and 20% from manufacturing, service and retail companies together with Clayton Houses, although rising mortgage charges will probably minimize into future dwelling gross sales.
Berkshire additionally mentioned rising charges might 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.
Buyers carefully watch Berkshire due to his fame, and since outcomes typically mirror broader financial traits.
The corporate additionally owns acquainted shopper manufacturers akin to Dairy Queen, Duracell, Fruit of the Loom and See’s Candies.
Supply: Reuters