Buffett’s company posts a $44 billion loss, but its companies are thriving

Berkshire Hathaway Warren Buffett

OMAHA, Nebraska Although Berkshire Hathaway’s numerous operating companies generally performed well, Warren Buffett’s company reported a $43.76 billion loss in the second quarter as the paper value of its investments plummeted. This suggests that the overall economy is withstanding the pressure from inflation and rising interest rates.

Berkshire reported a loss of roughly $44 billion, or $29,754 per Class A share, on Saturday due to a $53 billion decrease in investment value that was largely unrealized. This is less than the $28.1 billion, or $18,488 per Class A share, from the previous year.

Apple, American Express, and Bank of America, three of Berkshire’s largest assets, all had major declines in their stock values during the second quarter. However, each of those equities experienced a third-quarter recovery, so Berkshire’s portfolio is now worth more than it was at the conclusion of the quarter.

Since operating earnings at Berkshire do not include investment gains or losses, which can vary greatly from quarter to quarter, Buffett has long maintained that operating earnings are a better indicator of the performance of the company. According to that standard, Berkshire’s profits increased dramatically from $6.69 billion, or $4.399.92 per Class A share, last year to $9.28 billion, or $6,312.49 per Class A share.

FactSet’s four analysts predicted that Berkshire would post operating earnings of $4,741.64 per Class A share.

In addition to investments, Berkshire directly owns more than 90 businesses. According to Berkshire, operating profits increased at all of its important businesses, including the BNSF railroad, its main utilities, and its insurance companies. Geico reported larger auto claims losses due to the rising value of automobiles and continued shortages of car parts, but the robust earnings at most of its subsidiaries more than offset the $487 million pretax underwriting loss at Geico.

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According to Geico’s data, the auto insurer is having more difficulty raising rates to cover these increased costs than its competitors at Progressive and Allstate, so “I absolutely believe it deserves watching,” said CFRA Research analyst Cathy Seifert.

Due to its eclectic mix of manufacturing, retail, insurance, utility, and service firms that affect so many various industries, Berkshire is frequently viewed as a microcosm of the larger economy. Additionally, Berkshire’s profits typically follow the direction of the economy. Although higher interest rates are hurting Berkshire’s network of car dealers and its manufactured home division, other parts of the company are benefiting from higher rates on investments, according to Edward Jones analyst Jim Shanahan. Berkshire’s strong operating results also suggest that many businesses have been able to raise prices enough to offset surging inflation.

“This is a company with connections to numerous sectors of the economy. It gives me a lot of confidence that the overall economy is doing very well to demonstrate such broad revenue and earnings strength across the franchise, Shanahan said.

In the quarter, Berkshire reported a more than 10% gain in sales to $76.2 billion as many of its businesses raised pricing.

In comparison to the $106 billion it disclosed at the end of the first quarter, Berkshire said it had $105.4 billion in cash on hand at the end of the third quarter. Despite having reported spending several billion in Occidental Petroleum, that indicated Buffett wasn’t purchasing nearly as many stocks during the second quarter. More than $51 billion was spent on equities by Berkshire in the first three months of the year.

More Details about Warren Buffett’s Berkshire Hathaway

Although Berkshire did spend $1 billion during the quarter buying back its own shares, the rate of such buybacks has dramatically reduced. In the first quarter and $27 billion in the previous year, Berkshire repurchased $3.2 billion worth of its shares. Repurchases had been Buffett’s largest investment in recent years as he struggled to identify significant acquisitions, but this year he went on a buying spree, snapping up shares of companies including oil producers Occidental and Chevron, as well as printer maker HP Inc.

This year, Berkshire finally made an acquisition after agreeing to pay $11.6 billion for the insurance giant Alleghany.

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One intriguing fact hidden deep within Berkshire’s Securities and Exchange Commission filing is that the firm paid $870 million in June to acquire Greg Abel, vice chairman of Berkshire stake, in the company’s utility division. Buffett, the renowned 91-year-old billionaire, has no intentions to retire, but Abel is slated to succeed him as Berkshire’s CEO once he cannot lead the company. Abel’s intentions with the money, including whether he would reinvest it in Berkshire shares, were not made clear in the document.

Before becoming CEO, Abel has been urged by some investors to expand his holdings in Berkshire so that he will have a larger stake in the company’s future. Abel had five Class A shares and roughly 2,400 Class B shares as of the most recent report. Contrast that with Buffett, who controls more than 30% of Berkshire’s voting stock thanks to his ownership of 229,016 A shares and 276 B shares.

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