(Reuters) – Warren Buffett’s Berkshire Hathaway Inc posted a third-quarter loss of $2.69 billion on Saturday, as rising inflation, falling stock investments and a big loss from Hurricane Ian offset improvements in many of the conglomerate’s businesses.
Operating profit still rose 20%, beating analyst forecasts.
Berkshire benefited from increased demand and prices for sales of new homes, industrial products and energy, while the US Federal Reserve’s anti-inflation campaign helped Berkshire generate more income from insurance investments.
“On balance, results were strong and showed resilience given the impact of inflation, higher interest rates and supply chain challenges,”; said Jim Shanahan, analyst at Edward Jones & Co. with a “buy” rating on Berkshire.
Buffett’s company took advantage of declining stock markets to add more stocks to its $306 billion portfolio, buying a net $3.7 billion and building a now 20.9% stake in Occidental Petroleum Corp.
Berkshire also bought back more of its own stock but was cautious, buying back $1.05 billion, similar to the second quarter. It also bought back some shares in October.
The conservatism may reflect the “significant disruptions” Berkshire said its several dozen companies still see from supply chains and events beyond their control, such as the COVID-19 pandemic and the Russia-Ukraine conflict.
Berkshire also said rising costs from fuel and accidents are hurting the respective earnings of two of its best-known companies, BNSF railroad and Geico auto insurer.
Cathy Seifert, a CFRA Research analyst with a “hold” rating on Berkshire, said the company may be “at an inflection point, not unlike the economy,” where it will need to contain costs to prepare for slowing demand and a possible recession.
“Overall, this was a healthy quarter, but one has to be concerned about its trajectory over the next 12 months,” Seifert said.
The quarterly net loss was $1,832 per A share, and compared with a profit of $10.34 billion, or $6,882 per share, a year earlier.
The results included $10.45 billion in losses from investments and derivatives, as the share prices of many major Berkshire investments other than Apple Inc. fell.
Accounting rules require Berkshire to report such changes even if it does not buy or sell anything. This causes large quarterly fluctuations in results that Mr. Buffett says are usually meaningless.
Operating profit, meanwhile, rose to $7.76 billion, or about $5,294 per A share, from $6.47 billion, or $4,331 per share, a year earlier.
Earnings improved despite a $2.7 billion after-tax loss from Ian, a powerful Category 4 hurricane that slammed into Florida on Sept. 28. Revenue rose by 9%, while costs rose by 7%.
“The issue is which of the rising costs will be more permanent,” said Tom Russo, a partner at Gardner, Russo & Quinn in Lancaster, Pennsylvania, which invests more than $1 billion in Berkshire.
Mr. Russo said the results reflect “a company hunkering down and conserving resources while it waits for big ‘elephants,'” a term Buffett uses to describe big acquisitions.
Berkshire ended September with $109 billion in cash, up from $105.4 billion in June, although it spent $11.6 billion last month to buy insurance business Alleghany Corp.
A strengthening U.S. dollar led to $858 million in third-quarter gains from Berkshire’s non-dollar debt.
Meanwhile, the Fed’s aggressive hike in short-term interest rates led to a 21% increase in insurance investment, with income from US Treasuries and other debt nearly tripling to $397 million.
Profits at BNSF fell 6% as costs rose by a third, including increases of 27% for compensation and 80% for fuel, some of which was passed on to customers through surcharges.
Geico suffered its fifth straight quarterly insurance loss and lost $759 million before taxes, reflecting more frequent and costly accidents, rising used car prices and a shortage of auto parts. Written premiums barely changed.
Seifert said Geico, which is run by Berkshire portfolio manager Todd Combs, has underperformed many other auto insurers and could face further underwriting erosion if its “limited revenue growth and claim cost inflation” persist.
Offsetting the declines were profit gains of 6% from Berkshire Hathaway Energy and 20% from manufacturing, services and retail companies including Clayton Homes, although rising mortgage rates are likely to dampen future home sales.
Berkshire also said that rising interest rates could significantly lower any reduction in equity resulting from an upcoming accounting change for certain insurance contracts.
Mr. Buffett, 92, has run Berkshire since 1965.
Investors watch Berkshire closely because of his 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.