Warren Buffett’s Berkshire Hathaway Inc has revealed a lower than expected June quarter profit thanks to the combination of weakness in insurance underwriting, a slowing economy and the fallout from Donald Trump’s trade wars.
Berkshire said its second-quarter operating profit fell 11% to $US6.14 billion from $US6.89 billion a year earlier.
Berkshire also said quarterly net income rose 17% to $US14.07 billion, from $US12.01 billion, reflecting higher unrealised gains on investments in companies such as Apple, Bank of America, Well Fargo, Coca Cola, Amex, and bonds.
A US accounting rule now requires Berkshire to report such gains with earnings. That rule adds volatility to Berkshire’s net results, and Buffett has continually warned it can mislead investors.
Berkshire said its car insurer Geico suffered a larger number of accident claims, while competition from foreign producers, lower imports and Trump’s trade wars, especially with China dampened cargo volumes for consumer and agricultural products at its BNSF railroad business.
Earnings also barely budged at Berkshire’s manufacturing businesses, where Trump’s tariffs hurt sales of gas turbine and pipe products at its Precision Castparts unit, and its service and retailing businesses.
Berkshire’s cash pile rose to $US122.4 billion at the end of June. That has seen Berkshire agree to commit $US10 billion in April to help Occidental Petroleum Corp buy rival Anardako Petroleum Corp (beating out Chevron) Berkshire has also bought back $US2.1 billion of its stock this year.
Earnings from Berkshire’s insurance underwriting business slumped 63% to $US353 million, with declines in several businesses. Car insurer Geico’s pre-tax underwriting profit fell 42%, as a rise in claims overwhelmed growth in premiums from policies written.
At Berkshire’s huge reinsurance, property/casualty and commercial insurance units also underwriting earnings also weakened, reflecting higher claims payouts, changes in the expected timing of future payouts and currency fluctuations.
Berkshire was nonetheless able to boost float, or insurance premiums collected before claims are paid and which help fund growth, by another $1 billion in the quarter, to $US125 billion.
Profit at rail group, BNSF’s rose just 2% to $US1.34 billion on flat revenues as grain and coal volumes fell and the movement of manufactured goods dipped.
And Berkshire’s manufacturing, services, and retailing businesses totalled $2.49 billion. Berkshire Hathaway Energy saw profit rise 4% in the quarter.
The June quarter report did not include the full impact from Berkshire’s 26% plus holding in Kraft Heinz which has yet to report (despite being due to release its figures last week).
“As of August 3, 2019, Kraft Heinz’s financial statements for the first and second quarters of 2019 were not yet available to Berkshire,” Berkshire said.
“Accordingly, Berkshire’s Consolidated Financial Statements for the second quarter and first six months of 2019 exclude its share of the earnings and other comprehensive income of Kraft Heinz for those periods.
“Berkshire intends to record its share of Kraft Heinz’s earnings and other comprehensive income for the first six months of 2019 during the period that such information becomes available.
“During the second quarter and first six months of 2018, we recorded equity method earnings from our investment in Kraft Heinz of $187 million and $421 million, respectively.,” the company said in its filing on Saturday.
Kraft Heinz is expected to report its June quarter figures on Wednesday night and Berkshire will issue its updated figures shortly afterwards.
