Warren Buffett's Berkshire Hathaway swings to rare loss but performs better

Warren Buffett walks through the exhibit hall at the company's annual meeting in Omaha, Nebraska.
Warren Buffett walks through the exhibit hall at the company's annual meeting in Omaha, Nebraska.PHOTO: REUTERS

OMAHA, Nebraska (REUTERS) - Warren Buffett lost money but had a pretty good quarter.

Berkshire Hathaway 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, posting record operating profit as insurance rebounded from a difficult quarter while economic growth bolstered results in railroad, industrial and consumer businesses.

Berkshire posted a first-quarter net loss of US$1.14 billion (S$1.52 billion), or US$692 per Class A share, compared with net income of US$4.06 billion, or US$2,469 per share, a year earlier.

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

Two of Berkshire's biggest stock investments, Wells Fargo & Co and Coca-Cola, had tough first quarters, falling 13.6 per cent and 5.3 per cent, respectively.

Buffett has called the new accounting 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.

"It really is not representative of what's going on in the business at all," Buffett told shareholders at Berkshire's annual meeting in Omaha, Nebraska.

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

 

Analysts, on average, expected operating profit of about US$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 per cent to US$211,184 per Class A share, even though Buffett boosted his stake in Apple by US$12.5 billion in the quarter.

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

Buffett, 87, and vice-chairman Charlie Munger, 94, are answering five hours of questions from shareholders, journalists and analysts at the annual meeting.

PLENTY OF CASH

Despite the Apple purchase, Berkshire ended the quarter with US$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 US$407 million underwriting profit, compared with a year earlier US$267 million loss.

Buffett said the Geico car insurer had "quite a good-sized turnaround in profitability." 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 per cent to US$1.15 billion.

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