Date
20 September 2019
Berkshire Hathaway chairman Warren Buffett walks through an exhibit hall as shareholders gather at the company's annual shareholder meeting in Omaha, Nebraska, on Saturday. Photo: Reuters
Berkshire Hathaway chairman Warren Buffett walks through an exhibit hall as shareholders gather at the company's annual shareholder meeting in Omaha, Nebraska, on Saturday. Photo: Reuters

Berkshire swings to big profit, Buffett laments Kraft Heinz

Warren Buffett’s Berkshire Hathaway Inc. said gains in its stock investments fueled a big first-quarter profit, while improved results from its Geico auto insurer and BNSF railroad units boosted operating results, Reuters reports.

Berkshire also said it repurchased US$1.7 billion of its stock in the quarter, reflecting Buffett’s troubles to find better uses for the Omaha, Nebraska-based conglomerate’s cash hoard, which now totals US$114.2 billion.

Results were released on Saturday as Buffett, 88, and vice chairman Charlie Munger, 95, prepared to answer more than five hours of questions from shareholders and analysts at Berkshire’s annual meeting in Omaha, Nebraska, which draws tens of thousands of people.

The US$21.66 billion overall profit, or US$13,209 per Class A share, compared with a year-earlier net loss of US$1.14 billion, or US$692 per share, and a fourth-quarter net loss of US$25.39 billion.

These results illustrate what Buffett has called the “wild and capricious” and, in his view, meaningless swings caused by an accounting rule requiring the reporting of unrealized stock gains with earnings, regardless of Berkshire’s plans to sell.

Berkshire had US$15.1 billion of these gains in the first quarter.

Operating profit, which Buffett considers a better performance measure, rose 5 percent to US$5.56 billion, or about US$3,388 per Class A share, from US$5.29 billion, or US$3,215 per share, a year earlier.

Analysts on average expected operating profit of about US$3,399 per Class A share, according to Refinitiv data.

Results excluded operating earnings tied to Berkshire’s 26.7 percent stake in Kraft Heinz Co. because the food company has not released its own audited quarterly results, Buffett said.

Kraft Heinz, Wells Fargo

Buffett also maintained that “we paid too much” for Kraft Heinz, which was created in a 2015 merger between Kraft Foods and H.J. Heinz, which Berkshire and Brazil’s 3G Capital controlled.

Kraft Heinz has been a thorn for Berkshire, which in February took a US$3 billion writedown on its 26.7 percent stake, because of the packaged food company’s inability to keep up with changing consumer tastes and reliance on older brands such as Oscar Mayer and Jell-O.

Buffett defended 3G’s management, saying the combined company is doing well operationally, and that its current problems cannot be blamed on a lack of investment.

He also faced a question about his relative silence about Wells Fargo, where Berkshire owns a nearly 10 percent stake.

Wells Fargo has spent more than 2-1/2 years addressing fallout from mistreating its customers, including by creating fake accounts, losing two chief executives in the process, including Tim Sloan in March.

Buffett repeated that Wells Fargo “made some big mistakes” in its sales practices, and that “when you find a problem, you have to do something about it”. He also said chief executives who make big mistakes shouldn’t walk away with their wealth.

Geico, BNSF

Geico saw pre-tax underwriting profit rise 14 percent as rising rates and premiums offset higher accident claims.

BNSF’s profit rose 9 percent to US$1.25 billion as higher demand from the energy and industrial sectors offset lower volumes attributed to severe winter weather and flooding.

Among other businesses, the Berkshire Hathaway Energy unit posted a 3 percent profit increase, while earnings from retailing and services units increased 16 percent, despite a 19 percent revenue drop at See’s Candies because Easter fell late.

Berkshire owns more than 90 companies.

Last month, Berkshire committed US$10 billion to Occidental Petroleum Corp.’s cash-and-stock bid for Anadarko Petroleum Corp., which Chevron Corp. also wants to buy.

Berkshire’s Class A shares closed Friday at US$327,765.61, and its Class B shares closed at US$218.60.

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CG