Nov 5 (Reuters) – Warren Buffett’s Berkshire Hathaway Inc (BRKa.N) 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 new house gross sales, industrial merchandise and power, whereas the U.S. Federal Reserve’s inflation-fighting marketing campaign helped Berkshire generate extra revenue from insurance coverage investments.
“On steadiness, outcomes had been sturdy and demonstrated resilience given the influence of inflation, greater rates of interest and provide chain challenges,” mentioned 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 web $3.7 billion and constructing a now 20.9% stake in Occidental Petroleum Corp (OXY.N).
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 might replicate the “important 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 gasoline and accidents harm 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, mentioned the corporate could also be “at an inflection level, not in contrast to the financial system,” the place it might want to comprise prices to organize for slowing demand and a attainable 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 web 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 massive Berkshire investments apart from Apple Inc (AAPL.O) fell.
Accounting guidelines require Berkshire to report such adjustments even when it buys and sells nothing. This causes massive 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 change into 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 assets whereas it awaits massive ‘elephants,'” a time period Buffett makes use of to explain massive 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 aspects 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 revenue, with revenue 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 gasoline, a few of which was handed on to prospects by surcharges.
Geico suffered its fifth straight quarterly underwriting loss, shedding $759 million earlier than taxes, reflecting extra frequent and dear accident claims, rising used automobile costs and automobile components shortages. Written premiums barely modified.
Seifert mentioned Geico, run by Berkshire portfolio supervisor Todd Combs, has fared worse than many different auto insurers, and will endure additional erosion in underwriting if its “restricted income progress and claims value inflation” persists.
Offsetting the declines had 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 seemingly reduce into future house 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 client manufacturers resembling Dairy Queen, Duracell, Fruit of the Loom and See’s Candies.
Reporting by Jonathan Stempel in New York; Modifying by Mark Potter, Chizu Nomiyama and Jonathan Oatis
: .
