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

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

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 its liquidity. rack up a record.

Operating profit was lower than analysts’ forecast, penalized by disruptions as well as costs associated with Hurricane Ida and flooding in Europe, more than tripling underwriting losses at auto insurer Geico and other insurance activities.

Berkshire also said it repurchased $ 7.6 billion of its own shares in the third quarter and $ 20.2 billion this year, reflecting its need to deploy liquidity as stock markets hit new highs and purchases of entire companies seemed too expensive.

The buyouts, which appeared to continue into October, suggest that Buffett sees greater value in his Omaha, Nebraska-based conglomerate, whose operations include the BNSF railroad and the power unit of the same name, than in d ‘others.

Indeed, Berkshire ended September with $ 149.2 billion in cash and cash equivalents, and sold about 2 billion more shares than it bought in the quarter.

The buybacks are “a great way to respond to pressure from shareholders to add value,” said Tom Russo, partner at Gardner Russo & Quinn in Lancaster, Pa., Who has owned shares in Berkshire since 1982.

“The supply chain is creating bottlenecks which will inevitably affect the loads on the Berkshire Railway and create shortages in its housing businesses,” he added.

Many companies have said that the resurgence of COVID-19 cases fueled by the Delta variant has stretched global supply chains, causing shortages of goods and reducing consumer spending.

US gross domestic product grew at an annualized rate of 2% from July to September, according to the government’s advance estimate, from 6.7% in the second quarter.

Berkshire said supply chain disruptions had pushed up the prices of materials and freight, forcing businesses such as Clayton Homes mobile homes and Acme Bricks to raise prices, and caused a shortage of truck drivers at McLane.

He also said the disruptions had increased costs for his consumer products businesses, although profits were on the rise in his Forest River RV, Brooks running shoes and Duracell battery units.


Third-quarter operating profit rose 18% to $ 6.47 billion, or about $ 4,331 per Class A share, from $ 5.48 billion a year earlier, but is below 4 $ 493 per share forecast by analysts according to Refinitiv I / B / E / S.

Net income fell 66% to $ 10.3 billion, or $ 6,882 per Class A share, from $ 30.1 billion, reflecting lower unrealized gains on Berkshire common stock, including Apple Inc. (AAPL.O) and Bank of America Corp (BAC.N).

Buffett, the 91-year-old billionaire, believes the huge quarterly swings in bottom lines are usually meaningless and the result of accounting rules he doesn’t control.

Share buybacks have brought the total buybacks to around $ 45 billion since the end of 2019. Berkshire’s number of shares fell further in October, suggesting it bought back at least $ 1.7 billion of his own actions.

Buffett’s inactivity in buying stocks and entire companies disappointed some investors and analysts.

This stems in part from the role of Special Purpose Acquisition Companies (SPACs), which bring private companies to the stock exchange, in raising the prices of acquisition targets.

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

Despite supply chain pressures, BNSF’s quarterly profit rose 14% to $ 1.54 billion as higher shipment volume of consumer goods, industrials and coal offset the decline in grain exports.

Geico, meanwhile, recorded a pre-tax underwriting loss of $ 289 million, hit by Ida and an increase in vehicle accidents.

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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