Losses from two of the world’s more highly regarded companies, Toyota and Warren Buffett’s Berkshire Hathaway tells us that things are not as rosy in markets and the economy as some current optimists would have us believe.
Sure, markets are up strong since March and up for the year (except the Dow) and sure, there are more ‘green shoots’ each week, but not many seem to be developing with any vigour, and demand and economic growth remains barely enough to keep things ticking over
Warren Buffett sensibly split his annual meeting and first quarter figures between this weekend and last.35,000 people heard on May 2 that his company had an operating profit before write-downs and other adjustments; Friday the full figures showed a loss of $US1.53 billion.
It was the first loss since 2001 and mostly came from what Buffett called his “major mistake” of buying ConocoPhillips shares when oil prices were near their peak.
The first-quarter net loss compares with profit of $US940 million in the same period of 2008.
Berkshire said in a statement that write-downs on derivatives tied to corporate debt indexes cost the company about $US1.3 billion and Berkshire took a $US1.9 billion charge on ConocoPhillips, contributing to the worst net loss in at least two decades.
The derivatives have weighed on Berkshire results for more than a year, prompting paper losses that hurt net income even though Buffett negotiated the contracts to avoid putting up collateral.
Those derivative commitments, which cover possible losses on corporate debt, stock indexes and municipal bonds, prompted rating agencies to cut Berkshire’s AAA credit rating earlier this year.
Berkshire now has reported declining earnings for six quarters in a row (18 months).
Berkshire said in its SEC filing:
"It is expected that the current economic conditions will persist at least through 2009 before meaningful improvements become evident.
“Berkshire’s operating companies have taken and will continue to take cost reduction actions to manage through the current economic situation."
Even the mighty Buffett has been seared by the market and economic slumps.
The situation at Toyota, long a global star of business, is worse.
A record loss in the year to March, a record loss in the March quarter, and a record loss forecast for the year ahead.
Toyota Motor revealed a 766 billion yen (or $US7.7 billion) net loss for the March quarter, a loss that was bigger than General Motor’s $US5.9 billion reported on Thursday.
The Japanese giant also warned that it would remain deep in the red in the current financial year that started April 1 and ends March 31, 2010.
Like Buffett and Berkshire, Toyota’s reversal of fortunes has been quick and a sign of just how bitter the recession has been, coming after the worst credit crunch since the Depression.
Both companies have been hit by the crunch and then recession, which is now the dominant factor affecting business.
Toyota is still a far healthier company that GM, but its woes tell us that the company will have to change its approach to remaining in business at home and in the US in particular.
The size of Toyota’s projected net loss this year, at around $US8.5 billion ($US5.5 billion net), surprised the markets, as did the forecast of a 20% slide in revenues as car sales will be an estimated 1 million units lower over the year..
Its 437 billion yen loss ($US4.5 billion) for the full year to March – the first for the company has had since after the second world war – was also larger than expected. Toyota had warned of a 350 billion yen deficit.
The company burned through $US6.9 billion in the fourth quarter of the year to leave a $US4.5 billion full-year loss.
The rise in the yen has hurt and will go on hurting and the slump in sales at home and abroad, especially in the US is not going to improve quickly.
Toyota is weak in China where GM has better models and sales performance. Chinese car sales jumped 37% in April, thanks to government subsidies.
Car sales in the US fell 34% and in Japan, by 23% in the same month. Toyota’s own sales halved in the March quarter and it has slashed hours, shifts and working weeks across its vast empire to try and get rid of unsold stocks.
The Japanese maker’s global sales fell 15% to 7.57 million vehicles last year and will fall again to 6.5 million in the year to next March.
Company president Katsuaki Watanabe blamed the weak performance on a slump in vehicle sales, particularly in the US and Europe, as well as a stronger yen and higher raw material costs.
But the result also showed that Toyota is in an industry that is going to continue suffering heavily from capacity cuts, changing consumer tastes and be especially hostage to the rising cost of oil (up more than 70% since last November).
On top of that government subsidies won’t last forever, but consumer reluctance to buy at previously high levels, will, especially as bank lending to consumers will be weak for the next year or more.
It is the first time that Toyota has finished a year in the red since it started publishing results in 1941.
But unlike other car companies, Toyota has huge reserves: $US30 billion in cash and marketable securities at the end of March.
Toyota will pay a second-half dividend of 35 yen per share, compared with 75 yen a year ago.
The cut ends 10 years of risi
