Berkshire Hathaway Inc., owned by Warren Buffett, lost money in the third quarter as a volatile stock market and losses from insurance underwriting offset gains in its manufacturing, service, and retail businesses.
The Omaha, Neb.-based company reported a net loss of $2.69 billion, or $1,832 per class A share equivalent, compared to a profit of $10.34 billion, or $6,882 per share, the previous year.
Operating earnings, excluding some investment results, increased to $7.76 billion from $6.47 billion the previous year. Berkshire’s CEO and Chairman, Warren Buffett, has stated that he prefers that investors look at the company’s operating earnings, because Berkshire’s large stock investments can cause its net income or loss to swing significantly from quarter to quarter, even if its underlying businesses are doing well.
Although some of Berkshire’s largest stockholdings increased in the third quarter, the value of the company’s overall portfolio fell along with the market, resulting in a net loss.
“The amount of investment gains/losses in any given quarter is usually meaningless,” Berkshire said in a statement accompanying its results, and can be “extremely misleading to investors who have little or no knowledge of accounting rules.”
Berkshire owns companies in a wide range of industries, including insurance company Geico, freight railroad operator BNSF Railway, retailers such as Fruit of the Loom, and home builder Clayton Homes. As a result, its earnings are of particular interest to investors seeking insights into the health of the American economy.
Berkshire, like many other companies, was impacted by spiking inflation in the third quarter, as well as prolonged supply chain disruptions.
BNSF, for example, was able to charge customers more per railroad car loaded but was hampered by higher fuel costs and lower overall freight volumes, resulting in a 6.2% drop in after-tax earnings in the third quarter.
“We are still feeling the effects of higher materials, freight, labor, and other input costs,” Berkshire said.
Berkshire’s insurance underwriting business suffered a $2.7 billion hit as a result of Hurricane Ian.
However, Berkshire’s utilities and energy division performed better, thanks to gains in its natural-gas pipeline business and Northern Powergrid, an electrical distribution company. Energy price increases have contributed to higher profits at oil, gas, and utility companies this year.
The company’s home-construction-related businesses, which include paint company Benjamin Moore, flooring company Shaw Industries, and bricks and masonry company Acme Building Brands, benefited from a tight housing market as well. With mortgage rates rising as the Federal Reserve attempts to rein in inflation through interest-rate hikes, and home prices beginning to fall, Berkshire said it expects demand for its home-related businesses and services to fall from current levels.
Overall, earnings at Berkshire’s manufacturing, service, and retail businesses increased by 20% in the third quarter.
In the meantime, Berkshire continued to use cash for stock investments and buybacks. The company spent $1.05 billion on stock buybacks in the third quarter, which was in line with its total three months prior but significantly lower than the pace of buybacks in 2021. Berkshire, which largely repurchased its own stock in 2021, has shifted its focus this year to investing in other companies, purchasing millions more shares of Chevron Corp. and becoming the single largest shareholder in Occidental Petroleum Corp.
Energy stocks have been by far the best performers in the stock market this year, with Berkshire’s stake in Occidental propelling the stock to the top of the S&P 500 leaderboard. In 2022, it will have more than doubled.
At the end of the quarter, Berkshire still had a large cash pile. The company reported $109 billion in cash and cash equivalents at the end of September, up from $105.4 billion in the second quarter.