May 19, 2022

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Berkshire Hathaway's earnings fall as market pressure on the stock portfolio decreases

Berkshire Hathaway’s earnings fall as market pressure on the stock portfolio decreases

Berkshire Hathaway company

BRK.B -2.55%

First-quarter earnings slumped as turmoil in financial markets took a toll on its giant stock portfolio and soaring claims costs hurt the insurance business.

The Warren Buffett Corporation reported net income of $5.46 billion, or $3,702 per Class A share. That was down from $11.71 billion, or $7,638 a share, a year ago. Operating profit, which does not include some investment results, rose to $7.04 billion from $7.02 billion last year.

Most of Berkshire’s businesses, including rail, utilities and power, and manufacturing, services and retail operations, reported growth in the first quarter. But the insurance business took a severe hit. Berkshire said the cost of paying insurance claims rose dramatically as used-car prices rose, bringing operating income for that unit down to $47 million from $764 million the year before.

Berkshire’s net income can be volatile from quarter to quarter because the company has significant equity investments, and unrealized investment gains or losses need to be included in the figure. The company uses billions of dollars in flotation, or upfront premiums paid by insurance customers, to make investments for its own gain. While this is a boost to its results when markets are up, it hurt Berkshire’s earnings in the last quarter.

Concerns about inflation, monetary tightening and slowing growth This led to a decline in the S&P 500 index to start the year. Berkshire’s largest possession,

Apple company.

, received a blow. iPhone shares fell 11% in 2022. Other major holdings, such as

Kraft Heinz Company.

And

Coca-Cola company.

withstood market volatility better as stocks of companies that provide basic consumer staples gained popularity.

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Buffett, the CEO and chairman of Berkshire, is unlikely to focus much on the decline in net income. He has long argued that shareholders should focus more on Berkshire’s operating profit, which he believes is a better measure of how the company is doing.

The results were announced ahead of Berkshire’s first annual in-person shareholder meeting since 2019. The 91-year-old investor appeared on stage at a plaza in Omaha, Neb. Charlie Munger and vice presidents Greg Appel Ajit Jain. Shareholders pay close attention to Mr. Buffett’s views on markets and the economy, given his decades of investing experience and the broad scope of Berkshire’s business.

Berkshire operates a large insurance operation, as well as rail, utilities, manufacturers and retailers. Many of her holdings are household names, such as Fruit of the Loom, Geico, Dairy Queen, Benjamin Moore & Co.

While most shareholder meetings go by without warning, the Berkshire meetings have been dubbed the “Woodstock of the Capitalists” due to the unusually high turnout, and the festive-like atmosphere Lots of souvenirs Celebrating Mr. Buffett and his investments. In the past, attendees have taken home souvenirs such as Fruit of the Loom Boxers with Mr. Buffett’s images printed on them and the Oriental Trading rubber ducks that were modeled after Mr. Buffett and Mr. Munger.

One topic on investors’ minds: what would Berkshire do with its massive cash reserves. While the company didn’t make any major acquisitions in 2021, with Mr. Buffett citing a lack of attractive long-term investment opportunities, it ended that dry spell in the first few months of the year.

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In March, Berkshire said it did come to an agreement To get an insurance company

Rich Foundation.

For 11.6 billion dollars. The deal is set to be Berkshire’s largest in years. The company also revealed the construction of a 14.6% stake in

Occidental Petroleum

In March it disclosed an 11% stake in

HP.

in April.

Shares of Occidental and HP rose on news of Berkshire’s investments.

Berkshire also boosted its stake in

Chevron Corporation.

revealed on Saturday. It owned $25.9 billion worth of Chevron stock at the end of the first quarter, up from $4.5 billion at the end of 2021. Chevron is now among the four largest in Berkshire, joining Apple, American Express Co and Bank of America Corp. Replace Coca-Cola.

Because Berkshire spent more on other businesses, the company purchased less of its stock during the quarter. It repurchased about $3.2 billion of shares, down from $6.9 billion in the fourth quarter.

The company still has a huge amount of cash to draw from. Berkshire had $106.26 billion in cash and cash equivalents at the end of the first quarter, down from $146.72 billion. At the end of 2021.

Berkshire itself was a solid investment in 2022. Its Class A shares are up 7.5%, while the S&P 500 is down 13%.

Write to Akane Otani at [email protected]

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