The profits of Berkshire Hathaway Inc. BRK.B -2.55% fell in the first quarter as financial market turbulence weighed heavily on its giant equity portfolio and rising claims costs affected its insurance business.
Warren Buffett’s company reported a net profit of $ 5.46 billion, or $ 3,702 per Class A share. That’s less than $ 11.71 billion, or $ 7,638 a share, a year earlier. Operating profits, which exclude some investment results, rose to $ 7.04 billion from $ 7.02 billion last year.
Most of Berkshire’s businesses, including rail, utilities and energy, as well as manufacturing, services and retail operations, grew in the first quarter. But his insurance business suffered a sharp blow. Insurance claims have risen significantly as used car prices have jumped, Berkshire said, sending operating revenue to the unit to $ 47 million from $ 764 million a year earlier.
Berkshire’s net income may vary from quarter to quarter, as the company has large investments in equities and is required to include unrealized investment gains or losses in the figure. The company uses billions of dollars in float or advance premiums paid by its insurance customers to make investments for its own profit. While this boosted its performance as markets rallied, it hurt Berkshire’s profits in the last quarter.
Concerns about inflation, tightening monetary policy and slowing growth caused the S&P 500 to collapse earlier this year. Berkshire’s largest holding company, Apple Inc., suffered a blow. Shares of the iPhone maker fell 11% in 2022. Other major holdings, such as Kraft Heinz Co. and Coca-Cola Co., withstood market volatility better as stocks of major commodity companies gained popularity.
Mr Buffett, CEO and chairman of Berkshire, is unlikely to focus much on the decline in net income. He has long believed that shareholders should focus more on Berkshire’s operating profits, which he said is a better measure of the company’s performance.
The results were announced ahead of Berkshire’s first personal annual meeting of shareholders in 2019. The 91-year-old investor took the stage at an arena in Omaha, Nebraska, along with right-hand man Charlie Munger and vice presidents Greg Abel and Ajit Jane. Shareholders are paying close attention to Mr Buffett’s views on markets and the economy, given his decades of investment experience and the huge scale of Berkshire’s business.
Berkshire manages a major insurance operation, as well as railways, utilities, manufacturers and retailers. Many of his possessions are nominal, such as Fruit of the Loom, Geico, Dairy Queen and Benjamin Moore & Co.
While most shareholders’ meetings go unnoticed, Berkshire’s has been dubbed “Woodstock for Capitalists” due to its unusually high activity, the festival’s atmosphere and the many memories of Mr. Buffett and his investments. In the past, attendees brought home souvenirs such as Fruit of the Loom boxers with printed images of Mr. Buffett and rubber ducks Oriental Trading, created in the likeness of Mr. Buffett and Mr. Munger.
One topic in the minds of investors: what will Berkshire do with its huge cash reserves. Although the company did not make major acquisitions in 2021, with Mr Buffett pointing out the lack of attractive long-term investment opportunities, it ended this dry period in the first few months of the year.
In March, Berkshire said it had reached a deal to acquire insurer Alleghany Corp. for $ 11.6 billion. The deal will be Berkshire’s largest in years. The company also revealed that it had built a 14.6% stake in Occidental Petroleum in March and revealed an 11% stake in HP Inc. in April.
Shares of Occidental and HP jumped after news of Berkshire’s investment.
Berkshire also increased its stake in Chevron Corp., it revealed on Saturday. It owned $ 25.9 billion in shares of Chevron at the end of the first quarter, up from $ 4.5 billion at the end of 2021. Chevron is now among the top four positions in Berkshire, joining Apple’s American Express Co. and Bank of America Corp. and Coca-Cola displacement.
As Berkshire spent more on other businesses, the company bought back less of its own shares during the quarter. It bought back about $ 3.2 billion in shares, down $ 6.9 billion in the fourth quarter.
The company still has a mountain of money to use. Berkshire had $ 106.26 billion in cash and cash equivalents at the end of the first quarter, down $ 146.72 billion at the end of 2021.
Berkshire itself was a strong investment in 2022. Its Class A shares rose 7.5%, while the S&P 500 fell 13%.
Write to Akane Otani at akane.otani@wsj.com
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