Coronavirus punishes Warren Buffett, as Berkshire Hathaway takes big writedown

By Jonathan Stempel

(Reuters) – Berkshire Hathaway Inc on Saturday announced a $9.8 billion writedown and 10,000 job losses at its Precision Castparts aircraft and industrial parts business, as the coronavirus pandemic caused widespread pain for Warren Buffett’s conglomerate.

Berkshire, which acquired Precision for $32.1 billion in 2016 in its largest acquisition, said COVID-19 caused airlines to slash aircraft orders, resulting in significantly less demand for Precision’s products and revenue to fall by about one-third.

It also said results may continue suffering as the unit undertakes an “aggressive restructuring” to shrink operations to meet lowered demand. Precision ended 2019 with 33,417 employees, meaning it has since shed 30% of its workforce.

Precision was not the only drag on Berkshire, which said the pandemic has caused “relatively minor to severe” damage to most of its more than 90 operating businesses, which include the BNSF railroad, Geico auto insurer and See’s candies.

Berkshire said it also took a $513 million charge on its 26.6% stake in Kraft Heinz Co, which on July 30 took writedowns on several of its businesses, including its Maxwell House and Oscar Mayer brands.

The charges cut into Berkshire’s bottom line, though the Omaha, Nebraska-based conglomerate nevertheless posted an 87% increase in second-quarter net income because of unrealized gains in its common stock investments such as Apple Inc

Berkshire said it repurchased $5.1 billion of stock in the quarter, a record for the company, and confirming its hint in a July 8 regulatory filing that it had become more aggressive with buybacks after loosening its buyback policy in 2018.

Quarterly net income rose to $26.3 billion, or $16,314 per Class A share, from $14.07 billion, or $8,608 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. Berkshire had posted a $49.75 billion net loss in the first quarter.

Second-quarter operating profit fell 10% to $5.53 billion, or about $3,463 per Class A share, from $6.14 billion, or $3,757 per share, a year earlier.

Revenue at the BNSF railroad fell 22% and profit fell 15%, reflecting reduced shipping volumes, while lower travel demand caused a 31% revenue decline at the NetJets corporate jet unit.

In contrast, Geico said pretax underwriting profit increased fivefold to $2.06 billion because people drove less often, resulting in significantly fewer accident claims.

But that bump is likely to be temporary. Berkshire said Geico could suffer underwriting losses in the third and fourth quarters because it is giving $2.5 billion of credits to people who renew their auto and motorcycle policies.

Berkshire also ended June with $146.6 billion of cash and equivalents, in part because Buffett exited his bet on the airline industry by selling $6 billion of stock.

(Reporting by Jonathan Stempel in New York; Editing by Megan Davies, Hugh Lawson, Christina Fincher and Franklin Paul)