Warren Buffett’s firm reports $25B 4Q loss on paper stock losses

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Updated: Feb 24, 2019 12:37 PM

Buffett released his annual letter to Berkshire Hathaway Inc. shareholders on Saturday. He wrote that investors should continue betting on the American economy because Berkshire has prospered by doing so, but that they shouldn't forget about the rest of the world.

Warren Buffett encourages investors to bet on American economy (Reuters)

Warren Buffett’s company recorded a $25 billion loss in the fourth quarter because of a big drop in the paper value of several of its stock investments.

Buffett said Saturday that Berkshire Hathaway’s businesses are performing well overall, but it has to record the market value of its stock holdings at the end of each quarter and Buffett has struggled to find attractive acquisitions recently. Berkshire lost $25.4 billion, or $10.31 per Class B share, in the quarter. That’s down from last year’s profit of $32.6 billion, or $13.19 per B share.

The biggest drop in the value of Berkshire’s investments was a $3 billion write off it recorded on its Kraft Heinz stake. Berkshire controls roughly 26 percent of that food maker run by the Brazilian firm of 3G Capital, which is known for its tight cost controls.

Edward Jones analyst Jim Shanahan said the question now is how much Berkshire wants to continue working with 3G Capital, which it teamed up with to buy Kraft and Heinz. Shanahan said the Kraft Heinz investment hasn’t paid off as much as initially hoped, and now some question whether 3G’s lean operating model can prosper at a consumer goods company that needs significant marketing investments. “I think this relationship has permanently soured,” Shanahan said.

In the fourth quarter, Berkshire’s revenue grew to $63.7 billion, up from $58.8 billion in 2017.

Buffett has long said Berkshire’s operating earnings offer a better view of quarterly performance because they exclude investments and derivatives, which can vary widely. By that measure, Berkshire reported operating earnings of $5.7 billion, or about $2.32 per B share. That’s up from $3.3 billion, or about $1.35 per share.

Read Also| Warren Buffett makes case for his successor to keep Berkshire together

The five analysts surveyed by FactSet expected Berkshire to report operating earnings of $9.58 per share for the full year. Berkshire reported operating earnings of $24.8 billion, or about $10.05 per B share.

Berkshire said its 2018 revenue grew to $247.8 billion, up from $239.9 billion the previous year.

Shanahan said the operating earnings appeared solid, but he was disappointed Buffett didn’t find more ways to use Berkshire’s roughly $130 billion in cash and short term investments.

Berkshire’s BNSF railroad added $5.2 billion to the company’s net income last year, up from $4 billion the previous year.

The company’s utilities added $2.6 billion net income, up from $2 billion.

Berkshire Hathaway Inc. owns more than 90 companies, including the railroad and clothing, furniture and jewelry businesses. Its insurance and utility businesses typically account for more than half of the company’s net income. The company also has major investments in such companies as Apple, American Express, Coca-Cola and Wells Fargo & Co.

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