Warren Buffett’s Berkshire Hathaway Inc (BRKa.N) reported a $2.69 billion third-quarter loss on Saturday, offsetting improvements in several of the conglomerate’s operations with rising inflation, declining stock investments, and a sizable cost from Hurricane Ian.
Despite this, operating profit increased by 20%, above analyst expectations.
In addition to increasing demand and pricing for industrial goods, energy, and new home sales, Berkshire also profited from increased income from insured investments and the U.S. Federal Reserve’s campaign to combat inflation.
Jim Shanahan, an analyst from Edward Jones & Co with a “buy” ranking on Berkshire, said the results were overall good and showed resilience in the face of the effects of inflation, rising interest rates, and supply chain difficulties.
Buffett’s company purchased additional equities for its $306 billion portfolio at a net cost of $3.7 billion, adding a new 20.9% position in Occidental Petroleum Corp. (OXY.N).
Similar to the 2nd quarter, Berkshire repurchased $1.05 billion worth of its own stock while exercising caution. In October, it also purchased some stock back.
The caution may be a reflection of the “severe disruptions” that supply chains and outside factors like the COVID-19 epidemic and the Russia-Ukraine conflict continue to cause for Berkshire’s several dozen businesses, as per the company.
In addition, Berkshire claimed that growing expenses for fuel and accidents hurt the performance of two of its most well-known companies, the BNSF railway and Geico auto insurer.
Cathy Seifert, the CFRA Research analyst who rates in Berkshire as a “hold,” said the company may be at a crossroads similar to the economy, where it will need to control expenses to get ready for sluggish demand and a potential recession.
The basic conclusion is that this was a good quarter, but Seifert warned that one should be cautious about its trend over the following 12 months.
The net loss for the quarter was $1,832 per Class A share, as opposed to a gain of $10.34 billion, or about $6,882 per share, in the same period last year.
As a result of falling stock prices for many significant investments made by Berkshire outside of Apple Inc (AAPL.O), the results included losses from investments and swaps totalling $10.45 billion.
Despite making no purchases or sales, Berkshire is nonetheless required by accounting regulations to report such changes. Huge quarterly swings in outcomes occur from this, which Buffett claims are typically meaningless.
In the meantime, operating profit increased from $6.47 billion to $7.76 billion, or around $5,294 for each Class A share, from the previous year.
Notwithstanding a $2.7 billion after-tax losses incurred by Ian, a powerful Category 4 storm that struck Florida on September 28, the results improved. While costs increased by 7%, revenue increased by 9%.
According to Tom Russo, partner at Pennsylvania-based Gardner, Russo & Quinn, who invested more than $1 billion in Berkshire, the question is which of the rising costs will become more permanent.
Russo added the company’s results show a fortification and resource conservation while it waits for significant purchases, or “elephants,” as Buffett likes to refer to them.
Although Berkshire spent $11.6 billion last month purchasing the insurance company Alleghany Corp, it still had $109 billion in cash at the end of September, up from the $105.4 billion in June.
Profits belonging to the non-dollar-denominated Berkshire debt were $858 million in the third quarter as a result of the stronger dollar.
Although short-term interest rates were aggressively raised by the Fed, insurance investment income increased by 21%, with income from US Treasuries as well as other debt essentially doubling to $397 million.
As costs rose by a third, including hikes of 27% in compensation and 80% in fuel, part of which was carried on to consumers through surcharges, BNSF’s profit decreased by 6%.