Berkshire Hathaway reported a 59% decline in quarterly net income on Saturday — taking a $3.76 billion write-down on its stake in Kraft Heinz. The company also reported lower quarterly operating profit as insurance underwriting premiums declined. Berkshire indicated that its consumer goods businesses had taken a hit due to the tariff policies implemented by US President Donald Trump.
Shares of Berkshire have fallen more than 12% (and lagged the Standard & Poor’s 500 by about 22 percentage points) since Warren Buffett announced on May 3 he would step down as chief executive at the end of the year. Vice Chairman Greg Abel is set to replace him. Analysts have said the premium embedded in Berkshire’s stock price because of Buffett’s presence has eroded. They warn that growth may slow in the insurance sector — a major Berkshire profit center — while a lack of new investments also proves a drag.
Buffett transformed a once-struggling textile company into a $1.02 trillion conglomerate with nearly 200 businesses over the past six decades. Berkshire Hathaway now owns several insurers and reinsurers, electric utility and renewable energy businesses, several chemical and industrial companies, and familiar consumer brands such as Dairy Queen, Fruit of the Loom and See’s Candies.
What affected earnings of Berkshire Hathaway?
Berkshire Hathaway saw a 4% decline in profits to $11.16 billion — driven by a drop in insurance underwriting premiums. a $3.76 billion write-down on its stake in Kraft Heinz and lower gains from common stocks caused a 59% drop in overall net income. Uncertainty about trade policies — including tariffs — also became a headwind as delayed orders and shipments led to declining revenue at most of its consumer businesses.
$3.8 billion Kraft Heinz write-down
Kraft Heinz has proved a rare disappointment for Buffett with its carrying value now marked down to $8.4 billion — down from more than $17 billion at the end of 2017. The $3.76 billion after-tax write-down comes weeks after the struggling food company announced that it would consider strategic alternatives, including a breakup. This is the second write-down for Berkshire’s 27.4% stake in Kraft Heinz following a $3 billion dip in 2019. Buffett had acknowledged at the time that Berkshire overpaid in the 2015 merger that created the food company.
Trump tariff impact
US President Donald Trump had announced sweeping reciprocal tariffs against nearly all imports from more than 180 countries in April. These levies came into effect earlier this week for many countries, while others rushed to sign trade deals.
Berkshire Hathaway revealed on Saturday that its consumer products group — including companies such as Fruit of the Loom, Jazwares and Brooks Sports — had posted a 5.1% revenue decline in the second quarter due to lower volumes, tariffs and business restructurings.
The billionaire businessman had vehemently defended free trade during the company’s annual meeting — insisting that tariffs should not be a “weapon”.
(With inputs from agencies)