By Jonathan Stempel
(Reuters) - Warren Buffett's Berkshire Hathaway Inc on Saturday posted a $2.69 billion third-quarter loss as rising inflation, falling stock investments and a big loss from Hurricane Ian offset improvement in many of the conglomerate's businesses.
Operating profit nevertheless rose by 20%, topping analyst forecasts.
Berkshire benefited from increased demand and prices for new home sales, industrial products and energy, while the U.S. Federal Reserve's inflation-fighting campaign helped Berkshire generate more income from insurance investments.
"On balance, results were strong and demonstrated resilience given the impact of inflation, higher interest rates and supply chain challenges," said Jim Shanahan, an Edward Jones & Co analyst with a "buy" rating on Berkshire.
Buffett's company took advantage of declining equity markets to add more stocks to its $306 billion portfolio, buying a net $3.7 billion and building a now 20.9% stake in Occidental Petroleum Corp.
Berkshire also bought back more of its own stock but was cautious, repurchasing $1.05 billion, similar to the second quarter. It also bought back some stock in October.
The conservatism may reflect the "significant disruptions" that Berkshire said its several dozen businesses still see from supply chains and events beyond their control, such as the COVID-19 pandemic and Russia-Ukraine conflict.
Berkshire also said rising costs from fuel and accidents hurt respective results at two of its best-known businesses, the BNSF railroad and Geico auto insurer.
Cathy Seifert, a CFRA Research analyst with a "hold" rating for Berkshire, said the company may be "at an inflection point, not unlike the economy," where it will need to contain costs to prepare for slowing demand and a possible recession.
"Bottom line, this was a healthy quarter, but one needs to be concerned over its trajectory over the next 12 months," Seifert said.
The quarterly net loss equaled $1,832 per Class A share, and compared with a profit of $10.34 billion, or $6,882 per share, a year earlier.
Results included $10.45 billion of losses from investments and derivatives, as the stock prices of many large Berkshire investments other than Apple Inc fell.
Accounting rules require Berkshire to report such changes even if it buys and sells nothing. This causes large quarterly swings in results that Buffett says are usually meaningless.
Operating profit, meanwhile, rose to $7.76 billion, or about $5,294 per Class A share, from $6.47 billion, or $4,331 per share, a year earlier.
Results improved despite a $2.7 billion after-tax loss from Ian, a strong Category 4 hurricane that slammed into Florida on Sept. 28. Revenue rose 9%, while expenses rose 7%.
"The concern is which of the rising expenses are going to become more permanent," said Tom Russo, a partner at Gardner, Russo & Quinn in Lancaster, Pennsylvania, who invests more than $1 billion in Berkshire.
Russo said results reflect "an enterprise hunkering down and conserving resources while it awaits large 'elephants,'" a term Buffett uses to describe large acquisitions.
Berkshire ended September with $109 billion of cash, up from $105.4 billion in June, though it spent $11.6 billion last month to buy the Alleghany Corp insurance business.
A strengthening U.S. dollar led to $858 million of third-quarter gains from Berkshire's non-dollar-denominated debt.
Meanwhile, the Fed's aggressive raising of short-term interest rates fueled a 21% increase in insurance investment income, with income from U.S. Treasuries and other debt nearly tripling to $397 million.
Profit at BNSF fell 6% as expenses jumped by one-third, including increases of 27% for compensation and 80% for fuel, some of which was passed on to customers through surcharges.
Geico suffered its fifth straight quarterly underwriting loss, losing $759 million before taxes, reflecting more frequent and costly accident claims, rising used car prices and car parts shortages. Written premiums barely changed.
Seifert said Geico, run by Berkshire portfolio manager Todd Combs, has fared worse than many other auto insurers, and may suffer further erosion in underwriting if its "limited revenue growth and claims cost inflation" persists.
Offsetting the declines were profit increases of 6% from Berkshire Hathaway Energy and 20% from manufacturing, service and retail businesses including Clayton Homes, though rising mortgage rates will likely cut into future home sales.
Berkshire also said rising rates may significantly lower any reduction in shareholder equity resulting from an upcoming accounting change for some insurance contracts.
Buffett, 92, has run Berkshire since 1965.
Investors closely watch Berkshire because of his reputation, and because results often mirror broader economic trends.
The company also owns familiar consumer brands such as Dairy Queen, Duracell, Fruit of the Loom and See's Candies.
(Reporting by Jonathan Stempel in New York; Editing by Mark Potter, Chizu Nomiyama and Jonathan Oatis)