By Jonathan Stempel
(Reuters) - Warren Buffett's Berkshire Hathaway (NYSE:BRKa) Inc is being hit hard by the coronavirus pandemic, posting a record quarterly net loss of nearly $50 billion on Saturday and saying performance is suffering in several major operating businesses.
Berkshire said most of its more than 90 businesses are facing "relatively minor to severe" negative effects from COVID-19, the illness caused by the novel coronavirus and now punishing the global economy, with revenue slowing considerably in April even at businesses deemed "essential."
The BNSF railroad saw shipping volumes of consumer products and coal fall, while Geico set aside money for car insurance premiums it no longer expects to collect. Some businesses cut salaries and furloughed workers, and retailers such as See's Candies and the Nebraska Furniture Mart closed stores.
Buffett also allowed Berkshire's cash stake to rise to a record $137.3 billion from $128 billion at the end of 2019.
That reflected the 89-year-old billionaire's inability to make large, "elephant" size acquisitions for his Omaha, Nebraska-based conglomerate, and caution in buying stocks.
Berkshire said it bought only a net $1.8 billion of stocks in the first quarter. It also said it repurchased $1.7 billion of its own stock, but that was less than in the prior quarter.
"Historically, Buffett has been so visible in times of crisis, and encouraged investors to take advantage of market selloffs, but if he doesn't see opportunities even in his own stock, what are we to think?" said Jim Shanahan, an analyst at Edward Jones & Co in St. Louis.
Still, Shanahan said Berkshire is "as well positioned as it can be," reflecting its diverse businesses and substantial liquidity and access to capital. He rates Berkshire "buy."
Berkshire released results before its annual meeting, where Buffett said Berkshire in April sold its "entire positions" in the four largest U.S. airlines: American, Delta, Southwest and United.
Buffett said Berkshire "made a mistake" investing approximately $7 billion to $8 billion in the sector, which was changed "in a very major way" as the pandemic shut down most air travel, through no fault of the airlines.
The meeting was streamed on Yahoo (NASDAQ:AABA) Finance. It was held without the usual "Woodstock for Capitalists," a weekend of festivities that normally draws tens of thousands of people to Omaha, and which Buffett canceled because of the pandemic.
BERKSHIRE STOCK UNDERPERFORMS
Berkshire's first-quarter net loss was $49.75 billion, or $30,653 per Class A share, reflecting $54.52 billion of losses on stock and other investments. Net earnings were $21.66 billion, or $13,209 per share, a year earlier.
An accounting rule requires Berkshire to report unrealized stock losses and gains with net results, causing huge swings that Buffett considers meaningless.
Quarterly operating profit, which Buffett considers a better performance measure, rose 6% to $5.87 billion, or about $3,624 per Class A share, from $5.56 billion, or about $3,388 per share.
But year-earlier results reflected a charge for investments linked to what prosecutors called a Ponzi scheme at a solar company, which Berkshire did not know about.
Operating profit at Berkshire's businesses fell 3%, with declines at BNSF, utilities and energy units, and manufacturing, service and retailing operations such as Precision Castparts, which Berkshire bought for $32.1 billion in 2016.
Geico was able to post a 28% gain in pre-tax underwriting profit because people drove less, resulting in fewer claims for crashes. Still, the insurer, like others, is offering relief on premiums to policyholders.
Vice Chairman Charlie Munger told The Wall Street Journal last month that Berkshire might close a few small businesses.
Investors have been disappointed with Berkshire. Its stock price has fallen 19% in 2020, compared with a 12% drop in the Standard & Poor's 500, despite Buffett's prediction that Berkshire would outperform in down markets.
The decline came after Berkshire's stock lagged the index by more than 20 percentage points in 2019, including dividends.
In the first quarter, many Berkshire stock investments fared worse than the S&P, including American Express (NYSE:AXP), Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC) and the four airlines.
Falling stocks also caused a $1.39 billion pre-tax loss on derivatives contracts, where Berkshire is betting stock prices will rise over the long haul.