Warren Buffett’s Berkshire Hathaway can’t escape the impact of the COVID-19 pandemic and measures taken to control its spread as the company’s share portfolio took a near $50 billion hit in the three months to March.
The hit overshadowed a solid 6% gave in operating earnings for the quarter, but it is clear from commentary in the report and the annual meeting in Omaha, that the current quarter will see operating earnings take a big hit.
In its quarterly SEC filing, Berkshire said most of its more than 90 businesses are facing “relatively minor to severe” negative effects from COVID-19, with revenue slowing considerably in April even at company businesses classed “essential.”
The BNSF railroad group saw shipping volumes of consumer products and coal fall, while Geico set aside money for car insurance premiums it no longer expects to collect. Some businesses cut salaries and furloughed workers, and retailers such as See’s Candies and the Nebraska Furniture Mart closed stores.
Buffett also allowed Berkshire’s cash stake to rise to a record of $US137.3 billion as of March 31 from $US128 billion at the end of 2019.
He still can’t find a mega deal to soak up some of the cash. The last big spend was investing $US10 billion in Occidental’s takeover of fellow fracker, Anadarko, a deal that looked expensive at the time and now looks like lost money, based on current oil prices.
Berkshire said in its filing the first-quarter net loss totaled $US49.75 billion, reflecting $US54.52 billion of losses from investments, mainly common stocks.
An accounting rule requires Berkshire to report unrealised stock losses and gains with earnings each quarter. This causes huge swings in Berkshire’s net results that Buffett has rejected and says is meaningless.
For the March 2019 quarter, the company reported net earnings of $US21.66 billion. That, in turn, was after the 4th quarter of 2018 when a sharp market fall saw Berkshire report a loss of more than $US25 million.
Berkshire’s quarterly operating profit rose 6% to $US5.87 billion, from $US5.56 billion. Revenue for the quarter edged up 1% to $US61.27 billion.
The Standard & Poor’s 500 slid 20% in the first quarter but there were steeper falls in several large Berkshire holdings including American Express, Bank of America, Wells Fargo, and four airlines — American, Delta, Southwest, and United.
Berkshire’s operating businesses, like much of corporate America, were not unscathed by COVID-19, which reduced volumes at the BNSF railroad and forced retail businesses such as See’s Candies to temporarily close stores.
Most of Berkshire’s businesses have been hurt by the pandemic, with effects so far ranging from “relatively minor to severe,” and revenues of businesses deemed “essential” have slowed “considerably” in April, the company said in the filing.
Berkshire said it bought only a net $US1.8 billion of stocks in the first quarter, and sold a net $US6.1 billion in April. It also said it repurchased $US1.7 billion of its own stock in the first quarter, but that was less than the prior quarter.
Berkshire’s share price has fallen 19% in 2020, compared with a 12% drop in the Standard & Poor’s 500.
