The slide in US 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 (€47.4 billion) loss.
Berkshire nevertheless generated operating profits of nearly $9.3 billion (€9.1 billion) as gains from reinsurance and railway company BNSF 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 the firm’s insurance businesses generate more money from investments, while the strengthening US 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 (€103.1 billion) of cash it could deploy.
Investors closely watch Berkshire because of 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 US consumer brands such as Duracell and Fruit of the Loom.
"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 (€52 billion) of losses from investments and derivatives, including declines of more than 21 per cent 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.
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 (€49 billion) in the first quarter as the pandemic took hold, but made $42.5 billion (€41.7 billion) for the full year.
Berkshire repurchased just $1 billion (€981 million) of its own stock, down from $3.2 billion (€3.1 billion) in the first quarter, and compared with $51.7 (€50.8 billion) billion in 2020 and 2021.
Its $6.15 billion (€6 billion) of stock purchases fell from $51.1 billion (€50.1 billion) in the first quarter, when it took major stakes in oil companies Chevron and Occidental Petroleum .