Warren Buffett. Picture: REUTERS
Warren Buffett. Picture: REUTERS

New York — Berkshire Hathaway said its quarterly operating profit fell more than analysts expected, as weakness in insurance underwriting, a slowing economy and trade woes weighed on the conglomerate run by billionaire Warren Buffett.

Berkshire’s car insurer Geico suffered a larger number of accident claims, while competition from foreign producers, lower imports and “trade policy” dampened cargo volumes for consumer and agricultural products at its BNSF railroad.

Earnings also barely budged at Berkshire’s manufacturing businesses, where US tariffs hurt sales of gas turbine and pipe products at its Precision Castparts unit, and its service and retailing businesses.

Second-quarter operating profit declined 11% to $6.14bn, or about $3,757 a class A share, from $6.89bn, or about $4,190 a class A share, a year earlier.

Analysts on average expected operating profit of $3,851.28 a share, according to Refinitiv Ibes.

Berkshire also said quarterly net income rose 17% to $14.07bn, or $8,608 a class A share, from $12.01bn, or $7,301 a class A share, a year earlier, reflecting higher unrealised gains on Berkshire’s investments.

A US accounting rule requires Berkshire to report such gains with earnings. That rule adds volatility to Berkshire’s net results, and Buffett says it can mislead investors.

The US economy’s annualised growth rate slowed to 2.1% in the second quarter from 3.1% in the first quarter, as an acceleration in consumer spending was partially offset by declining exports, manufacturing and business investment, reflecting the trade war between the US and China.

Buffett told CNBC in May that a US-China trade war would be “bad for the whole world”, and a full-scale trade war would be “bad for everything Berkshire owns”.

More cash

Berkshire ended June with $122.4bn of cash and equivalents, reflecting Buffett’s three-year drought in finding big acquisitions since buying Precision Castparts.

He has instead invested elsewhere, building a $50.5bn stake in iPhone maker Apple and committing $10bn in April to help Occidental Petroleum buy rival Anardako Petroleum. Berkshire has also bought back $2.1bn of its stock in 2019.

The Omaha, Nebraska-based conglomerate operates more than 90 businesses that also include Dairy Queen ice cream, Fruit of the Loom underwear, and its namesake energy company and real estate brokerage. It also owns dozens of stocks, including Bank of America, Wells Fargo & Co and Coca-Cola.

Class A shares of Berkshire closed Friday at $306,000, about 9% below their peak in October 2018. Class B shares closed at $202.67, closer to 10% below their peak.

Consumer drag

Insurance underwriting profit dropped 63% to $353m, with declines in several businesses.

Geico’s pre-tax underwriting gain fell 42%, as a higher ratio of loss claims to premiums earned more than offset growth in policies written.

Underwriting at Berkshire’s reinsurance, property-and-casualty and commercial insurance units also weakened, reflecting higher claims payouts, changes in the expected timing of future payouts, and currency fluctuations.

Berkshire was nonetheless able to boost float, or insurance premiums collected before claims are paid and which help fund growth, by another $1bn in the quarter, to $125bn.

BNSF’s profit rose 2% to $1.34bn, while revenue was essentially unchanged.

Profit was also flat in Berkshire’s manufacturing, services and retailing businesses, totaling $2.49bn.

While Berkshire said more people flew NetJets corporate jets, “soft consumer demand” weighed on sales at home furnishings businesses, which include Nebraska Furniture Mart.

Berkshire Hathaway Energy profit rose 4%.