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Berkshire Hathaway’s earnings fall when the market turmoil weighs on the equity portfolio




Berkshire Hathaway Inc. sine

BRK.B -2.55%

Earnings in the first quarter fell as turbulence across the financial markets weighed on the giant equity portfolio and rising claims costs damaged the insurance business.

Warren Buffett’s company reported net income of $ 5.46 billion, or $ 3,702 equivalent to Class A shares. It was down from $ 11.71 billion, or $ 7638 per share, a year earlier. Operating income, which excludes some investment results, increased to $ 7.04 billion from $ 7.02 billion last year.

Most of Berkshire’s businesses, including rail, tools and energy, as well as manufacturing, service and retail, grew in the first quarter. But the insurance business suffered a major blow. The cost of paying out insurance claims rose sharply as used car prices jumped, Berkshire said, sending operating revenues for that unit to $ 47 million from $ 764 million the year before.

Berkshire̵[ads1]7;s net income can be volatile from quarter to quarter because the company has large equity investments, and it is required to include unrealized investment gains or losses in the chart. The company spends billions of dollars in floating, or advance premiums paid by insurance customers, to make investments for its own gain. Although there is a boost for results as markets rise, it hurt Berkshire’s earnings in the last quarter.

Concerns about inflation, tighter monetary policy and declining growth caused the S&P 500 to fall to start the year. Berkshire’s largest stake, Apple Inc..

, received a blow. The iPhone maker’s shares are down 11% in 2022. Other major holdings, such as Kraft Heinz Co..

and Coca-Cola Co.

managed market volatility better as shares in consumer goods companies became popular.

Mr. Buffett, Berkshire’s CEO and chairman, is unlikely to focus much on the drop in net income. He has long believed that shareholders should focus more on Berkshire’s operating revenues, which he believes are a better measure of how the company is performing.

The results were announced ahead of Berkshire’s first annual shareholders’ meeting since 2019. The 91-year-old investor appeared on stage at an arena in Omaha, Neb., Along with right-hand man Charlie Munger and deputies Greg Abel and Ajit. Jain. Shareholders pay close attention to Mr. Buffett’s views on the markets and the economy, given his decades of investment experience and the enormous scale of Berkshire’s operations.

Berkshire runs a large insurance business, as well as a railway, tools, manufacturers and dealers. Many of the stocks are well-known names, such as Fruit of the Loom, Geico, Dairy Queen and Benjamin Moore & Co.

While most shareholders’ meetings pass without much notice, Berkshire’s has been dubbed “Woodstock for Capitalists” given its unusually high turnout, festival-like atmosphere and abundance of memories celebrating Mr. Buffett and his investments. In the past, participants have brought home souvenirs such as Fruit of the Loom boxers with pictures of Mr. Buffett printed on them and Oriental Trading rubber ends made similar to Mr. Buffett and Mr. Munger.

A topic on investors’ minds: what Berkshire wants to do with its huge cash reserves. Although the company did not make any major acquisitions in 2021, while Mr. Buffett cites the lack of attractive long-term investment opportunities, it put an end to the dry period in the first months of the year.

In March, Berkshire said it had reached an agreement to buy insurance company Alleghany Corp..

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

in April.

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

Berkshire also increased its stake in Chevron Corp..

, it revealed on Saturday. The owned Chevron shares worth $ 25.9 billion at the end of the first quarter, up from $ 4.5 billion at the end of 2021. Chevron is now among Berkshire’s four largest positions, joining Apple, American Express Co. and Bank of America Corp. and displaces Coca-Cola.

As Berkshire spent more on other businesses, the company repurchased less of its own shares during the quarter. It bought back around $ 3.2 billion in stocks, down from $ 6.9 billion in the fourth quarter.

The company still has a mountain of cash they can tap. Berkshire had $ 106.26 billion in cash and equivalents at the end of the first quarter, down from $ 146.72 billion at the end of 2021.

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

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

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