Berkshire Hathaway’s earnings fall as market pressure on the stock portfolio decreases

Berkshire Hathaway company

BRK.B -2.55%

First-quarter earnings slumped as turmoil in financial markets took a toll on its giant stock portfolio and soaring claims costs hurt the insurance business.

The Warren Buffett Corporation reported net income of $5.46 billion, or $3,702 per Class A share. That was down from $11.71 billion, or $7,638 a share, a year ago. Operating profit, which does not include some investment results, rose to $7.04 billion from $7.02 billion last year.

Most of Berkshire’s businesses, including rail, utilities and power, and manufacturing, services and retail operations, reported growth in the first quarter. But the insurance business took a severe hit. Berkshire said the cost of paying insurance claims rose dramatically as used-car prices rose, bringing operating income for that unit down to $47 million from $764 million the year before.

Berkshire’s net income can be volatile from quarter to quarter because the company has significant equity investments, and unrealized investment gains or losses need to be included in the figure. The company uses billions of dollars in flotation, or upfront premiums paid by insurance customers, to make investments for its own gain. While this is a boost to its results when markets are up, it hurt Berkshire’s earnings in the last quarter.

Concerns about inflation, monetary policy tightening and slowing growth dragged the S&P 500 index down to start the year. Berkshire’s largest company, Apple Inc.

, received a blow. iPhone shares fell 11% in 2022. Other major holdings, such as Kraft Heinz Co.

The Coca-Cola Company.

has weathered market volatility better as stocks of companies that provide basic consumer staples gain popularity.

Buffett, the CEO and chairman of Berkshire, is unlikely to focus much on the decline in net income. He has long argued that shareholders should focus more on Berkshire’s operating profit, which he believes is a better measure of how the company is doing.

Investors curious to hear what Berkshire does next will get a chance to hear from Mr. Buffett later on Saturday. The 91-year-old investor – along with right-hand man Charlie Munger and Vice-Presidents Greg Appel and Ajit Jane – will speak at Berkshire’s first annual in-person shareholder meeting since 2019. Shareholders will pay close attention to Mr. Buffett’s views on markets and the economy, given his investment expertise. That spanned decades and the broad scope of Berkshire’s business.

Based in Omaha, Neb. , Berkshire operates a large insurance operation, as well as rail, utilities, manufacturers and retailers. Many of her holdings are household names, such as Fruit of the Loom, Geico, Dairy Queen, Benjamin Moore & Co.

While most shareholder meetings pass without warning, the Berkshire meetings have been dubbed the “Woodstock of the Capitalists” due to the unusually high turnout, festival-like atmosphere, and plethora of memorabilia celebrating Mr. Buffett and his investments. In the past, attendees have taken home souvenirs such as Fruit of the Loom Boxers with Mr. Buffett’s images printed on them and the Oriental Trading rubber ducks that were modeled after Mr. Buffett and Mr. Munger.

Just half an hour after the convention center where the meeting was scheduled opened its doors to the public, hundreds of attendees flocked, many rushing to demand the seats closest to the stage where Mr. Buffett would speak.

The highlight of the weekend will be an hour-long question-and-answer session, where executives will send inquiries from randomly selected audience members and CNBC reporter Becky Kwik.

Buffett said he would not discuss what Berkshire was buying or selling, and how Berkshire came to the investment or policy decision.

“Any other topics are fair game,” he wrote in a program for the event.

Shareholders may also look forward to hearing Mr. Buffett share his views on various Berkshire shareholder proposals. In April, the California Public Employees Retirement System, the nation’s largest pension fund, said it planned to support a motion to remove Mr. Buffett as Berkshire’s president. Other shareholder proposals ask Berkshire to reveal more about its efforts to mitigate greenhouse gas emissions.

Another topic likely on investors’ minds this weekend: what Berkshire will do with its massive cash reserves. While the company didn’t make any major acquisitions in 2021, with Mr. Buffett citing a lack of attractive long-term investment opportunities, it ended that dry spell in the first few months of the year.

Berkshire said in March it had reached an agreement to acquire Richie Corp.

For 11.6 billion dollars. The deal is set to be Berkshire’s largest in years. The company also revealed that it had built a 14.6% stake in Occidental Petroleum in March and announced an 11% stake in HP Inc..

in April.

Shares of Occidental and HP rose on news of Berkshire’s investments.

Berkshire also boosted its stake in Chevron Corp.

revealed on Saturday. It owned $25.9 billion worth of Chevron stock at the end of the first quarter, up from $4.5 billion at the end of 2021. Chevron is now among the four largest in Berkshire, joining Apple, American Express Co and Bank of America Corp. Replace Coca-Cola.

Because Berkshire spent more on other businesses, the company purchased less of its stock during the quarter. It repurchased about $3.2 billion of shares, down from $6.9 billion in the fourth quarter.

Berkshire itself was a solid investment in 2022. Its Class A shares are up 7.5%, while the S&P 500 is down 13%.

The company still has a huge amount of cash to draw from. Berkshire had $106.26 billion in cash and cash equivalents at the end of the first quarter, down from $146.72 billion at the end of 2021.

Write to Akane Otani at akane.otani@wsj.com

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