Supply Chain Problems Squeeze Profits at Buffett’s Berkshire Hathaway; money sets a record

Nov. 6 (Reuters) – Warren Buffett’s Berkshire Hathaway Inc (BRKa.N) said on Saturday that disruptions in the global supply chain were limiting its ability to generate profits, as rising stock prices brought it down to sell certain stocks and increase his cash flow to a record.

Operating profit rose 18% but missed analysts’ forecasts as a resurgence of COVID-19 cases fueled by the Delta variant of the coronavirus caused commodity shortages and slashed consumer spending, while Damage from Hurricane Ida and flooding in Europe increased underwriting losses at auto insurer Geico and other insurance units.

Net income, meanwhile, fell 66%, reflecting lower earnings from stocks such as Apple Inc (AAPL.O) and Bank of America Corp (BAC.N).

Berkshire repurchased $ 7.6 billion of its own shares in the third quarter and $ 20.2 billion this year as rising stock markets made buying entire companies increasingly expensive.

The buyouts, which appeared to continue into October, suggest that Buffett, a 91-year-old billionaire, sees greater value in his own Omaha, Nebraska-based conglomerate, whose operations include the BNSF Railroad and the Unity energy of the same name.

“One of the great board games is what is Berkshire’s next big acquisition,” said Cathy Seifert, CFRA Research analyst with a “hold” rating on Berkshire. “I think we just saw him: he bought back $ 20 billion of his own stock.”

Berkshire was also a net seller of shares, selling about $ 2 billion more in shares than it bought in the quarter. He ended September with $ 149.2 billion in cash and cash equivalents.

“I certainly hope there will be more buyouts, as there is not a lot of evidence that the capital is being leveraged,” said Jim Shanahan, an Edward Jones & Co analyst who views Berkshire as a purchase”.

DISTURBANCES

Third-quarter operating income reached $ 6.47 billion, or about $ 4,331 per Class A share, from $ 5.48 billion, or about $ 3,488 per share, a year earlier.

Analysts are forecasting an average of $ 4,493 per share, according to Refinitiv I / B / E / S.

Net income fell to $ 10.3 billion, or $ 6,882 per Class A share, from $ 30.1 billion. Buffett believes the huge quarterly fluctuations in bottom lines are generally meaningless and result from accounting rules he does not control.

Berkshire Hathaway shareholders walk past a video screen at the company’s annual meeting in Omaha, May 4, 2013. REUTERS / Rick Wilking / File Photo

Berkshire said supply chain disruptions had driven up prices for materials and freight, forcing businesses like Clayton Homes mobile homes and Acme Bricks to raise prices – and caused a shortage of truck drivers at McLane.

He said the disruptions also drastically reduced sales of new vehicles in its auto dealership unit and increased the costs of its consumer products business, although profits from Forest River RVs, Brooks running shoes and Duracell batteries are increasing.

Partly due to Delta and the disruptions, some caused by labor shortages, U.S. gross domestic product grew at an annualized rate of 2% in the third quarter according to the government’s prior estimate, up from 6%. 7% in the second trimester.

“The supply chain is creating bottlenecks that will inevitably affect loads on the Berkshire Railroad and create shortages in its housing business,” said Tom Russo, partner at Gardner Russo & Quinn in Lancaster, Pa. , which has owned shares in Berkshire since 1982.

DISASTER LOSSES

The results reflect what analyst Shanahan called the “extraordinarily high” of $ 2.2 billion in disaster-related losses, mostly from Ida and the floods, though other insurers also suffered significant losses.

Geico alone lost $ 289 million pre-tax from the underwriting, hit by Ida and an increase in vehicle accidents.

In contrast, the BNSF managed to increase profits by 14% to $ 1.54 billion, as higher volumes of industrial goods and coal offset lower grain exports.

Buffett’s failure to buy more stocks and companies has disappointed some investors and analysts.

In part, this stems from how Special Purpose Acquisition Companies (SPACs), which make private companies public, drive up the prices of acquisition targets.

“It’s a killer,” Buffett said at the Berkshire annual meeting on May 1.

CFRA Research analyst Seifert said Berkshire would not be sidelined forever and in 2022 may consider acquisitions in sectors it has long favored including industrials and consumer staples.

“Given the number of high-profile incidents, such as Precision Castparts and Kraft Heinz, one can understand some of Berkshire’s reluctance,” she said, referring to the aircraft parts maker and the company. food.

Reporting by Jonathan Stempel in New York; Editing by Mike Harrison, David Holmes and Grant McCool

Our standards: Thomson Reuters Trust Principles.


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