Berkshire Hathaway earnings fall on investment losses

Berkshire Hathaway, an insurance and investing conglomerate run by billionaire and investment legend Warren Buffett, reported Saturday a significant drop in earnings in the first quarter.

Profits at the company, which owns a diverse array of American brands from car insurer Geico to ice cream chain Dairy Queen, fell to $5.4 billion. That was down 53 per cent from the nearly $12 billion that it earned in the same three months a year ago. Those profits were also lower than the $6 billion that analysts had expected the company would earn in the quarter.

Much of the drop, though, was driven by Berkshire’s large stock portfolio, which lost nearly $1.6 billion in the first three months of the year, down from a gain of nearly $5 billion in the first quarter of 2021. That drop mirrored the performance of the stock market in general, which had its worst month in two years in April, and has been dragged down by investors’ fears about rising inflation and uncertainty caused by the Ukrainian war and the pandemic’s lingering impact on global supply chains.

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The earnings report came out as the company was holding its annual meeting in person for the first time since the beginning of the pandemic.

Buffett said Saturday at the meeting that Berkshire had been buying shares of the video game company Activision Blizzard since Microsoft announced its plans to buy Activision on Jan. 18 and now holds a 9.5 per cent stake in the company.

The company’s financial filings also showed that Berkshire had dramatically increased its investment in oil company giant Chevron to nearly $26 billion at the end of the first quarter, up from just $4.5 billion at the end of 2021. That made Chevron Berkshire’s fourth-largest holding, behind Apple, Bank of America and American Express. Buffett has recently been making big bets on the energy sector. Last month, the company also bought $7 billion in shares of Occidental Petroleum.

Sales and profits at Berkshire’s operating businesses continued to rise in the quarter, bucking the overall contraction in the US economy in the first quarter. Economists said, though, that the drop in gross domestic product hid some underlying strength in the US economy, and Berkshire’s operating results seemed to back that up. Profits at Berkshire's manufacturing and retail businesses rose 16 per cent from the same period a year ago. Profits at its railroad company Burlington Northern, one of the largest freight networks in the United States, were up 9 per cent, again reflecting continued business activity.

Berkshire’s mixed first quarter results came as tens of thousands of Buffett’s loyal investors have flocked to Omaha, Nebraska, his hometown, for the company’s annual meeting. The Buffett-fest is a daylong folksy affair, often called “Woodstock for Capitalists,” in which Buffett spends hours answering questions in front of a crowd in the downtown 17,000-seat arena. Although there were some empty seats, several corporate notables were there, among them Apple CEO Tim Cook, JPMorgan Chase CEO Jamie Dimon, Bill Ackman, head of the hedge fund Pershing Square Capital Management, and actor Bill Murray.

A giant conference room floor was filled with booths highlighting Berkshire’s many companies, and offering discounts on things such as boxes of See’s Candies, also owned by Berkshire. Buffett said Saturday from the stage that See’s had brought 11 tons of candy to the shareholder meeting, and expected to sell out. Only shareholders can attend in person. The meeting had been virtual for the past two years.

Buffett, in fielding shareholder questions at the meeting, was critical of Wall Street. He said the stock market resembled “a gambling parlor” in recent years, adding that the speculative behaviour was “encouraged by Wall Street.”

Buffett, 91, faces a slightly more contentious annual meeting than usual, despite the fact that Berkshire’s shares, up nearly 8 per cent this year, have outperformed the overall market, which is down 13 per cent. “Historically, Berkshire shares have outperformed during periods of economic distress as investors made a ‘flight to quality,’” Cathy Seifert, an analyst at CFRA Research who follows Berkshire, wrote in a note to clients this past week.

Dissident shareholders put up a proposal asking Berkshire to overhaul how it views and details its climate risk, something Buffett has resisted doing. They say Berkshire Hathaway Energy, which manages a number of large utilities, has lagged behind rivals in setting plans to lower its emissions of carbon dioxide. The climate proposal last year had the support of many larger shareholders outside of Buffett’s inner circle, including BlackRock, Vanguard and State Street.

What’s more, a number of large investors, including the giant California Public Employees Retirement Fund, backed a shareholder proposal that sought to remove Buffett, currently CEO and chair of the company’s board of directors, from his chair role. That proposal is one that larger investors have floated at other companies as well, arguing that splitting the roles is better corporate governance.

Buffett opposed the proposals, and they failed Saturday. Because he has a large number of votes, proposals Buffett opposes are typically defeated.

When responding to the climate proposal Saturday, he once again emphasized that Berkshire Hathaway Energy was making big investments in renewable energy projects. But those behind the proposal said they wanted Berkshire to make climate disclosures for the whole company, not just parts of the conglomerate. “What we are asking for is a composite picture,” said Timothy Youmans, an executive at EOS at Federated Hermes in North America, which was a sponsor of the climate proposal.

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