Berkshire Hathaway earnings fall as market tumult weighs on stock portfolio

Berkshire Hathaway Inc.

BRK.B -2.55%

First-quarter earnings fell as turmoil in financial markets weighed on its giant stock portfolio and rising claims costs hurt its insurance underwriting business.

Warren Buffett’s company reported net income of $5.46 billion, or $3,702 per equivalent Class A share. That was down from $11.71 billion, or $7,638 per share, a year earlier. Operating profit, which excludes some investment results, rose slightly to $7.04 billion from $7.02 billion a year ago.

Most of Berkshire’s businesses, including its railroads, utilities and energy, as well as its manufacturing, services and retail businesses, saw growth in the first quarter. But its insurance underwriting business has been hit hard. The cost of paying insurance claims has risen dramatically as used car prices jumped, Berkshire said, pushing that unit’s operating profit down to $47 million from $764 million. one year earlier.

Berkshire’s net income can be volatile from quarter to quarter because the company has large equity investments and it is necessary to include unrealized investment gains or losses in the figure. The company uses billions of dollars in float, or upfront premiums that its insurance customers pay, to make investments for its own benefit. While this boosts its results when markets recover, it hurt Berkshire’s earnings in the past quarter.

Worries about inflation, monetary policy tightening and slowing growth dragged the S&P 500 down at the start of the year. Berkshire’s largest holding company, Apple Inc.

, took a hit. Shares of the iPhone maker are down 11% in 2022. Other major holdings, like Kraft Heinz Co.

and Coca-Cola Co.

held up better to market volatility as stocks of companies supplying consumer staples gained popularity.

Mr. Buffett, who is the chief executive and chairman of Berkshire, is unlikely to focus much on declining net income. He has long argued that shareholders should focus more on Berkshire’s operating profits, which he says are a better measure of the company’s performance.

Investors curious about what Berkshire does next will have a chance to hear from Mr. Buffett later on Saturday. The 91-year-old investor, alongside right-hand man Charlie Munger and vice-chairmen Greg Abel and Ajit Jain, will speak at Berkshire’s first annual shareholder meeting since 2019. Shareholders will pay close attention to the views of Mr. Buffett on the markets and the economy, given his decades of investment experience and the vast scale of Berkshire’s business.

Based in Omaha, Neb., Berkshire runs a large insurance operation, as well as a railroad, utilities, manufacturers and retailers. Many of its holdings are household names, such as Fruit of the Loom, Geico, Dairy Queen and Benjamin Moore & Co.

While most shareholder meetings are held without notice, Berkshire’s has been dubbed the “Capitalists’ Woodstock” due to its unusually high turnout, festival atmosphere and plethora of memorabilia celebrating Mr. Buffett and his investments. In the past, attendees have taken home souvenirs such as Fruit of the Loom boxers with images of Mr. Buffett printed on them and Oriental Trading rubber duckies created with Mr. Buffett and Mr. Munger.

Just half an hour after the convention center where the meeting is to be held opened to the public, hundreds of attendees streamed in, with many rushing to claim seats closest to the stage where Mr Buffett is due to take the speech.

The highlight of the weekend will be an hour-long Q&A session during which executives will field inquiries from randomly selected members of the public and CNBC reporter Becky Quick.

Mr Buffett said he would not discuss what Berkshire buys or sells, how Berkshire arrived at an investment decision or a policy.

“Anything else is fair game,” he wrote in a program for the event.

Shareholders could also seek to hear Mr. Buffett share his views on various Berkshire shareholder proposals. In April, the California Public Employees Retirement System, the nation’s largest pension fund, said it planned to back a proposal to remove Mr. Buffett from Berkshire’s presidency. Other shareholder proposals ask Berkshire to disclose more about its efforts to mitigate greenhouse gas emissions.

Another topic likely to preoccupy investors this weekend: what Berkshire will do with its massive cash reserves. Although the company made no 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.

In March, Berkshire announced it had reached an agreement to acquire insurer Alleghany Corp..

for $11.6 billion. The deal is expected to be Berkshire’s biggest in years. The company also disclosed that it acquired a 14.6% stake in Occidental Petroleum in March and disclosed an 11% stake in HP Inc..

in April.

Shares of Occidental and HP soared after news of Berkshire’s investments.

Berkshire also increased its stake in Chevron Corp..

, he revealed on Saturday. He held $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 Berkshire’s four largest positions, joining Apple, American Express Co. and Bank of America Corp. and replace Coca-Cola.

As Berkshire spent more on other businesses, the company repurchased fewer of its own shares during the quarter. It repurchased about $3.2 billion in shares, down from $6.9 billion in the fourth quarter.

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

The company still has a mountain of cash that it can tap into. Berkshire had $106.26 billion in cash and cash equivalents at the end of the first quarter, compared to $146.72 billion at the end of 2021.

Write to Akane Otani at [email protected]

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