Buffett’s Berkshire swings to rare loss but performs better

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OMAHA, Neb. (Reuters) – Warren Buffett lost money but had a pretty good quarter.

A shareholder takes a picture of a drawing of Warren Buffett at the Berkshire Hathaway Inc annual meeting, the largest in corporate America, in its hometown of Omaha, Nebraska, U.S., May 4, 2018. REUTERS/Rick Wilking

Berkshire Hathaway Inc (BRKa.N) on Saturday reported an unusual quarterly net loss, the result of an accounting change that Buffett had warned would produce “wild” but in his view meaningless swings in results.

But Berkshire also ended a long stretch of disappointing operating performance, as insurance rebounded from a difficult quarter while economic growth bolstered results in railroad, industrial and consumer businesses.

The results were released on the same day Berkshire is holding its annual meeting in Omaha, Nebraska, where Buffett, 87, and Vice Chairman Charlie Munger, 94, will answer five hours of questions from shareholders, journalists and analysts.

Berkshire posted a first-quarter net loss of $1.14 billion, or $692 per share, compared with net income of $4.06 billion, or $2,469 per share, a year earlier.

The accounting change required Berkshire to report $6.2 billion of unrealized losses in its marketable stock portfolio, which totaled $170.5 billion at year end, regardless of whether it planned to sell those stocks.

Buffett has called the new rule a “nightmare” that would produce “truly wild and capricious swings” in bottom-line results that could, depending on their direction, unnecessarily scare or embolden investors.

Two of Berkshire’s biggest stock investments, Wells Fargo & Co (WFC.N) and Coca-Cola Co (KO.N), had tough first quarters, falling 13.6 percent and 5.3 percent, respectively.

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Berkshire said its operating profit, which Buffett considers a better performance measure, rose 49 percent to $5.29 billion, or about $3,215 per Class A share, from $3.56 billion, or $2,163 per share, a year earlier.

Analysts, on average, expected operating profit of about $3,116 per Class A share, according to Thomson Reuters I/B/E/S. Operating profit had previously fallen for five straight quarters, and missed Wall Street forecasts for eight straight.

Book value, which measures assets minus liabilities, also took a hit from falling stock prices, falling 0.3 percent to $211,184 per Class A share, even though Buffett boosted his stake in Apple Inc (AAPL.O) by $12.5 billion in the quarter.

Some analysts have said the stock losses have weighed on Berkshire shares, which are 10 percent below their record highs set on Jan. 29. In Friday trading, the Class A shares closed at$292,600, and the Class B shares at $195.64.

PLENTY OF CASH

Despite the Apple purchase, Berkshire ended the quarter with $108.6 billion of cash and equivalents, giving Buffett ammunition to make one or more “huge” non-insurance acquisitions he has said he wants.

Berkshire’s insurance businesses, which had been struggled with losses from hurricanes and other events, posted a $407 million underwriting profit, compared with a year earlier $267 million loss.

Geico was a star performer. Pre-tax underwriting gains nearly quadrupled, as it sold more policies despite having raised rates, while the rate of policyholder losses fell.

“The trends look pretty good,” Tony Nicely, Geico’s chief executive, told Reuters on Friday. “The number of claims are down somewhat. Yet the costs keep going up.”

An improving economy led to higher business volume at the BNSF railroad, which saw profit rise 37 percent to $1.15 billion.

Pretax profit at industrial businesses such as Precision Castparts rose 32 percent, while lower taxes helped boost profit at the Berkshire Hathaway Energy unit by 22 percent.

Reporting by Jonathan Stempel and Trevor Hunnicutt in Omaha, Nebraska; Editing by Nick Zieminski and Jennifer Ablan



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