© Reuters. FILE PHOTO: Shareholders shop for discounted products at the annual Berkshire Hathaway shareholder meeting in Omaha, Nebraska, U.S., May 4, 2019. REUTERS/Scott Morgan/File Photo
By Jonathan Stempel
(Reuters) -Warren Buffett’s Berkshire Hathaway (NYSE:) Inc on Saturday posted a $2.69 billion third-quarter loss as rising inflation, falling stock investments and a big loss from Hurricane Ian offset improvement in many of the conglomerate’s businesses.
Operating profit, meanwhile, rose by 20%, as Berkshire benefited from increased demand and prices for new home sales, industrial products and energy, while rising interest rates helped generate more income from insurance investments.
Berkshire took advantage of declining equity markets to add more stocks to its $306 billion portfolio, buying a net $3.7 billion in the quarter and building a now 20.9% stake in the oil company Occidental Petroleum Corp (NYSE:).
It also bought back more of its own stock but was cautious, repurchasing $1.05 billion, similar to the second quarter.
The Omaha, Nebraska-based conglomerate’s cash hoard ended September at $109 billion, up from $105.4 billion in June. It spent $11.6 billion last month to buy an insurance business, Alleghany (NYSE:) Corp.
Berkshire’s conservatism may reflect the “significant disruptions” that it said it still sees in supply chains and from events it cannot control, such as the COVID-19 pandemic and Russia-Ukraine conflict.
It also said rising costs hurt results at two of its best-known businesses, the BNSF railroad and Geico auto insurer.
“The concern is which of the rising expenses are going to become more permanent,” said Tom Russo, a partner at Gardner, Russo & Quinn in Lancaster, Pennsylvania, who invests more than $1 billion in Berkshire.
Russo said results reflect “an enterprise hunkering down and conserving resources while it awaits large ‘elephants,'” a term Buffett uses to describe large acquisitions.
The quarterly net loss, equal to $1,832 per Class A share, compared with a profit of $10.34 billion, or $6,882 per share, a year earlier.
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 were bolstered by the strengthening U.S. dollar, which added $858 million to the value of Berkshire’s non-dollar denominated debt, and a 21% increase in insurance investment income.
Income from U.S. Treasuries and other debt nearly tripled to $397 million, as the Federal Reserve aggressively raised short-term interest rates to combat inflation.
Profit rose 6% from Berkshire Hathaway Energy and 20% from manufacturing, service and retail businesses including Clayton Homes. Berkshire said, though, that higher mortgage rates will likely cut into future home sales.
That helped offset a $2.7 billion after-tax loss from Ian, a strong Category 4 hurricane that slammed into Florida on Sept. 28. Insurance modelers and executives said storm damages could far exceed $50 billion.
In 2022, Berkshire’s stock has outperformed the , falling just 4% compared with the index’s 21% decline.
Profit at BNSF fell 6% as expenses jumped by one-third, including an 80% surge in fuel costs, some of which the railroad passed on to customers through surcharges.
Geico, meanwhile, suffered its fifth straight quarterly underwriting loss, reflecting “significant cost inflation” from damages claims, used car prices and shortages of car parts.
Net results included $10.45 billion of losses from investments and derivatives, as the stock prices of many large Berkshire investments other than Apple Inc (NASDAQ:) fell.
Accounting rules require Berkshire to report the changes even if it buys and sells nothing. This causes large quarterly swings in results that Buffett says are usually meaningless.
Buffett, 92, has run Berkshire since 1965.
Investors closely watch Berkshire because of his reputation, and because results from its dozens of operating units often mirror broader economic trends.
Those units also include estate brokerage, and consumer brands such as Dairy Queen, Duracell, Fruit of the Loom and See’s Candies.