Nov 5 (Reuters) – Warren Buffett’s Berkshire Hathaway Inc ( BRKa.N ) posted a third-quarter loss of $2.69 billion on Saturday, offsetting an improvement in the conglomerate’s many businesses as rising inflation, a drop in equity investment and a heavy loss from Hurricane Ian.
However, operating profit rose 20%, beating analysts’ forecasts.
Berkshire benefited from rising demand and prices for new home sales, industrial products and energy, while the U.S. Federal Reserve’s anti-inflation campaign helped Berkshire earn more from its insurance investments.
“On balance, the results were strong and showed resilience, given the impact of inflation, higher interest rates and supply chain issues,” said Edward Jones & Co analyst Jim Shanahan, who has a “buy” rating on Berkshire.
Buffett’s company took advantage of the decline in stock markets to add more shares to its $306 billion portfolio, taking a net $3.7 billion and building a stake in Occidental Petroleum Corp ( OXY.N ) that is now 20.9%.
Berkshire also bought back more of its own stock, but was cautious, buying back $1.05 billion as recently as the second quarter. He bought back some shares in October.
The conservatism may reflect the “significant disruptions” Berkshire said its several dozen businesses are still seeing from supply chains and events beyond its control, such as the COVID-19 pandemic and the Russia-Ukraine conflict.
Berkshire also said rising costs from fuel and accidents hurt results at two of its best-known businesses, BNSF railroad and Geico auto insurance.
CFRA Research analyst Cathy Seifert, who has a “hold” rating on Berkshire, said the company may be at a “turning point as opposed to the economy,” where it needs to contain costs to prepare for slowing demand and a possible recession.
“It was probably a healthy quarter, but you have to be concerned about its trajectory over the next 12 months,” Seifert said.
Net loss for the quarter was $1,832 per Class A share, compared with earnings of $10.34 billion, or $6,882 per share, a year earlier.
The results included a $10.45 billion loss on investments and derivatives as the share prices of many of Berkshire’s biggest investments outside of Apple Inc ( AAPL.O ) fell.
Accounting rules require Berkshire to report such changes even if it does not buy or sell anything. That leads to big quarterly swings in results that Buffett says are usually meaningless.
Operating profit rose to $7.76 billion, or about $5,294 per Class A share, from $6.47 billion, or $4,331 per share, a year earlier.
Results improved despite a $2.7 billion after-tax loss from powerful Category 4 Hurricane Ian that hit Florida on Sept. 28. Revenue increased by 9% and expenses by 7%.
“The concern is which of the increased costs will be more permanent,” said Tom Russo, a partner at Gardner, Russo & Quinn in Lancaster, Pennsylvania, which has invested more than $1 billion in Berkshire.
Russo said the results reflect “a business that hunts and conserves stocks while waiting for the big ‘elephants’,” a term Buffett uses to describe big acquisitions.
Although Berkshire ended September with $109 billion in cash, up from $105.4 billion, last month it spent $11.6 billion to buy Alleghany Corp.’s insurance business.
A stronger U.S. dollar led to an $858 million gain on Berkshire’s non-dollar-denominated debt in the third quarter.
Meanwhile, the Fed’s aggressive hike in short-term interest rates led to a 21% increase in insurance investment income, while income from US Treasuries and other debt nearly tripled to $397 million.
Profits at BNSF fell 6% as costs rose by a third, including a 27% increase in compensation and an 80% increase in fuel, some of which was passed on to customers through surcharges.
Geico suffered its fifth straight quarterly underwriting loss, losing $759 million before taxes. Written premiums are almost unchanged.
Seifert said Geico, run by Berkshire portfolio manager Todd Combs, has fared worse than many other auto insurers and could suffer more erosion in underwriting if “limited revenue growth and claims inflation” continue.
Although rising mortgage rates will likely dampen future home sales, offsetting the declines were 6% profit growth from Berkshire Hathaway Energy and 20% from Clayton Homes, a manufacturing, services and retail business.
Berkshire also said that the incremental rates could significantly offset any reduction in stockholders’ equity resulting from the upcoming accounting change for certain insurance contracts.
92-year-old Buffett has led Berkshire since 1965.
Investors watch Berkshire closely because of its reputation and because results often reflect broader economic trends.
The company also owns familiar consumer brands such as Dairy Queen, Duracell, Fruit of the Loom and See’s Candies.
Reporting by Jonathan Stempel in New York; Edited by Mark Potter, Chizu Nomiyama, and Jonathan Oatis
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