Billionaire Warren Buffett’s warning that a new accounting change wouldcause “truly wild swings” in his company’squarterly earnings is now a reality.
Berkshire Hathaway reported a rare net loss of $1.1 billion in the first quarter, but the decline was due largely to a newrule that requiresit to report unrealized gains or losses in stock investments as net income. Berkshire reported a $6.3 billion loss in investment income in the first three months of the year.
The swing to a loss Berkshire’s first quarterly loss since 2009, according to Bloomberg wasn’t entirely unexpected.
In his annual letter to shareholders in February, Buffett warned that the new reporting rule would produce some “truly wild and capricious swings.” He also noted that “gyrations of that magnitude will swamp the truly important numbers that describe our performance.”
In a statement accompanying today’s earnings report, Buffett, the firm’s chairman and CEO, urged investors to focus on Berkshire’s operating businesses and not earnings results based on fluctuations in its nearly $173 billion stock portfolio.He says the stock portfolio can see fluctuations of up to $10 billion in any given quarter.
“The amount of investment gains or losses in any given quarter is usually meaningless,” the legendary investor wrote in the earnings release.
In addition to its hugestock holdings, Berkshire owns roughly five dozen businesses in industries ranging from railroads and retail toauto insurance and industrial manufacturers. His stable of well-known brands include ice cream retailer Dairy Queen, battery-maker Duracell and auto insurer GEICO.
Berkshire’s net income suffered a wild swing. The first-quarterloss of $1.1 billion comparesto a $4.1 billion profitin the first quarter of 2017.
The company reported first-quarter revenues of $58.5 billion, a shade below Wall Street expectations of $58.7 billion and down 9.1% from $64.4 billion in the same period a year ago.
The company’s reported “operating earnings” which strips out certain charges that are not reflective of the overall health of the business, such as some investment results painted a more upbeat profit picture. Berkshire’s reported operated earnings of $5.3 billion, were up nearly 49% from $3.6 billion a year ago.
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Warren Buffett attends the Forbes 100th Anniversary Gala in New York on Sept. 20, 2017. Andy Kropa, Invision/APFullscreen Warren Buffett, Berkshire Hathaway Chairman and CEO, speaks to employees of subsidiary Fruit of the Loom as he tours the exhibit floor at the CenturyLink Center in Omaha, Neb., May 6, 2017, where company subsidiaries display their products. More than 30,000 people are expected to attend the annual Berkshire Hathaway shareholders meeting where Buffett and his Vice Chairman Charlie Munger preside over a Q&A session. Nati Harnik, APFullscreen Berkshire Hathaway shareholder Barb Whitelock of Omaha stands in line to buy a commemorative Coca Cola can made for the Chinese market that features the likeness of Warren Buffett, at the CenturyLink Center in Omaha, Neb., May 5, 2017. Nati Harnik, APFullscreen Berkshire Hathaway Chairman and CEO Warren Buffett applauds at a rally for Democratic presidential candidate Hillary Clinton at Omaha North High Magnet School in Omaha, Neb., Aug. 1, 2016. Andrew Harnik, APFullscreen Microsoft co-founder and Berkshire board member Bill Gates, left, and Berkshire Hathaway Chairman and CEO Warren Buffett, right, speak during an interview on the Fox Business Network, in Omaha, Neb., May 2, 2016. John Peterson, APFullscreen Cleveland Cavaliers’ LeBron James, front center, sits in front of Warren Buffett, back left, and Cavaliers owner Dan Gilbert in the fourth quarter of an NBA basketball game against the Charlotte Hornets, Dec. 15, 2014, in Cleveland. Mark Duncan, APFullscreen Detroit Lions Vice Chairman Bill Ford meets with Warren Buffett during pre-game warmups of an NFL football game against the Minnesota Vikings at Ford Field in Detroit, Dec. 14, 2014. Paul Sancya, APFullscreen This photo provided by Proxibid shows Warren Buffett inside his 2006 Cadillac DTS. Buffett’s car was auctioned for more than $122,000, about 10 times the estimated worth, as the billionaire and philanthropist offered to again help out one of his favorite charities. Buffett put the car for sale on the website Proxibid, specifying that the money would be donated to Girls Inc. of Omaha. The car, valued at about $12,000 went for a final bid of $122,500 on Feb. 19, 2015. Paige Stark, Proxibid via APFullscreen Warren Buffett (L), chairman of Berkshire Hathaway Inc., walks with his wife Astrid at the Allen & Company Sun Valley Conference at the Sun Valley Resort on July 12, 2014 in Sun Valley, Idaho. Scott Olson, Getty ImagesFullscreen Berkshire Hathaway Chairman and CEO Warren Buffett drinks a Cherry Coke, May 4, 2014, at Berkshire-owned Borsheims jewelry store, as he sells jewelry to Berkshire shareholders, one day after the annual shareholders meeting in Omaha, Neb. Nati Harnik, APFullscreen Berkshire Hathaway Chairman and CEO Warren Buffett eats an ice cream bar while touring the exhibition floor prior to the annual shareholders meeting on May 3, 2014, in Omaha, Neb. Nati Harnik, APFullscreen An unidentified shareholder takes a selfie with Berkshire Hathaway Chairman and CEO Warren Buffett, left, and Berkshire board member Bill Gates, right, prior to the annual shareholders meeting on Saturday, May 3, 2014, in Omaha, Neb. Nati Harnik, APFullscreen Berkshire Hathaway Chairman and CEO Warren Buffett reacts at the newspaper throwing competition while touring the exhibition floor prior to the annual shareholders meeting on May 3, 2014, in Omaha, Neb. Nati Harnik, APFullscreen Berkshire Hathaway’s Warren Buffett, left, and See’s Candies CEO Brad Kinstler, May 3, 2014, at the Berkshire Hathaway Annual Shareholder’s Meeting, in Omaha, Neb. Dave Weaver, Invision for See’sFullscreen Heinz commemorative Ketchup bottles bear the cartoon likeness of investor Warren Buffett, right, and of his second in command Charlie Munger, left, at a Heinz display in Omaha, Neb., May 2, 2014. Nati Harnik, APFullscreen Todd and Laura McCollough of Denver get their picture taken by Melody Dunbar, also of Denver, as they pose behind a cutout featuring billionaire investor Warren Buffett, May 2, 2014, in Omaha, Neb. Nati Harnik, APFullscreen Glenn Close and Warren Buffett perform onstage at FORTUNE Most Powerful Women Summit on October 15, 2013, in Washington, DC. Paul Morigi, Getty Images for FORTUNEFullscreen Warren Buffett speaks at ‘A Conversation with Warren Buffett’ in Washington, DC on Sept. 19, 2013. H. Darr Beiser, USA TODAYFullscreen Berkshire Hathaway’s Warren Buffett, right, and Dairy Queen’s CEO John Gainor share lunch on May 20, 2013 in Omaha, Neb. Buffet helped launch the ‘The First S’mores Blizzard of Summer’ and was celebrated as Dairy Queen’s number one fan. Dave Weaver, AP Images for Dairy QueenFullscreen Investor Warren Buffett greets shareholders while touring the exhibit floor prior to holding the Berkshire Hathaway shareholders meeting, in Omaha, Neb., May 4, 2013. Nati Harnik, APFullscreen Berkshire Hathaway Chairman and CEO Warren Buffett, right, is watched by Detroit Lions defensive tackle Ndamukong Suh, left, as he is assisted by Harlem Globetrotter Chris ‘Handles’ Franklin (C) in spinning a basketball in Omaha, Neb., May 4, 2013, before holding the Berkshire Hathaway shareholders meeting. Nati Harnik, APFullscreen Berkshire Hathaway shareholders fill the CenturyLink Arena in Omaha, Neb., May 4, 2013, as they wait to hear Chairman and CEO Warren Buffett and his right-hand man Charlie Munger answer questions for more than six hours. No other annual meeting can rival Berkshire’s, which is known for its size, the straight talk Buffett and Munger offer and the sales records shareholders set while buying Berkshire products. Nati Harnik, APFullscreen Berkshire Hathaway Chairman and CEO Warren Buffett is flanked by television and radio reporters as he walks the exhibition floor in Omaha, Neb., May 4, 2013. T Nati Harnik, APFullscreen Berkshire Hathaway Chairman and CEO Warren Buffett participates in the newspaper throwing competition while touring the exhibit floor ahead the Berkshire Hathaway shareholder meeting in Omaha, Neb., May 4, 2013. Nati Harnik, APFullscreen Warren Buffett, chairman and CEO of Berkshire Hathaway, right, and Microsoft’s Bill Gates, are watched by Berkshire shareholders as they play against table tennis prodigy Ariel Hsing in Omaha, Neb., May 6, 2012. Nati Harnik, APFullscreen Warren Buffett lives in Omaha, Neb. and is a 1950 graduate of the University of Nebraska. Warren Buffett has a big collection of Nebraska Cornhusker paraphernalia. “I’ve always liked sports. I haven’t been that good at it. I’ve been redshirted now for 61 years,” Buffett said. Eric Francis, for USA TODAYFullscreen This June 25, 2009 courtesy photo provided by the Sunshine Lady Foundation shows Doris Buffett, right, with her brother, billionaire Warren Buffett. After Warren Buffett received scores of individual requests for help when he announced that he would gradually give away his fortune, he turned to his big sister Doris Buffett and her Sunshine Lady Foundation to review the requests and to find people struggling through no fault of their own. Uncredited, The Sunshine Lady Foundation via APFullscreen Billionaire Warren Buffett greets the crowd as he prepares to throw the ceremonial first pitch at Omaha Golden Spikes-Iowa Cubs minor-league baseball game April 29, 2000, at Rosenblatt Stadium in Omaha, Neb. Nati Harnik, Associated PressFullscreenLike this topic? You may also like these photo galleries:Replay1 of 282 of 283 of 284 of 285 of 286 of 287 of 288 of 289 of 2810 of 2811 of 2812 of 2813 of 2814 of 2815 of 2816 of 2817 of 2818 of 2819 of 2820 of 2821 of 2822 of 2823 of 2824 of 2825 of 2826 of 2827 of 2828 of 28AutoplayShow ThumbnailsShow CaptionsLast SlideNext Slide
Its insurance underwriting unit posted operating earnings of $407 million after a loss in the final quarter of 2017 due to claim payouts due to hurricanes and other catasrophes. Buffett’s railroad, utilities and energy units posted operating earnings of $1.7 billion, up 31% from a year ago.
Last year, Berkshire Hathaway posted net earnings of $44.9 billion, but nearly two-thirds of the gain came from a one-time $29 billion tax windfall from the new tax law passed by Congress in December that reduced the corporate income tax rate from 35% to 21%.
Next up for Berkshire and Buffett today is the company’s closely followedannual shareholder meeting, dubbed the “Woodstock of Capitalism,” which gets underway later this morning in the billionaire investor’s hometown of Omaha, Nebraska..
The main event is a daylong question-and-answer sessionwhere Buffett, 87, and vice chairman Charlie Munger, 94, will field questions from an estimated crowd of 40,000 on topics ranging from who will run the conglomerate whenBuffettleaves the stage andhow they plan to deploy a cash hoard that hit a record $116 billion at the end of last year.
Buffett made big newsahead of the meeting, telling CNBC thatBerkshire had bought 75 million more shares of Apple in the first quarter, raising its total stake in the iPhone maker to nearly 242 million shares. The Apple stake is valued at roughly $44 billion. Apple is now Berkshire’s No.1stock holding, eclipsing long-time top holding Wells Fargo.
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Roughly 40,000 of Warren Buffetts cult-like army of devotees will descend on Omaha for Berkshire Hathaway's annual shareholder meeting. USA TODAY