Warren Buffett takes $10bn hit and slashes 10,000 jobs at parts maker

Telegraph reporters
·2-min read
Warren Buffett
Warren Buffett

Berkshire Hathaway announced a $9.8bn 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 bought Precision for $32bn in 2016 in its largest acquisition, said Covid caused airlines to slash aircraft orders, resulting in significantly less demand for Precision's products. Revenues fell by about a third.

It also said results may continue suffering as the unit undertakes an "aggressive restructuring" to shrink operations to meet lowered demand. Precision had almost 33,500 employees at the end of last year, meaning it has since shed 30pc 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 and Geico insurance.

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

The charges hit Berkshire's bottom line, though the Omaha, Nebraska-based conglomerate nevertheless posted an 87pc increase in second-quarter net profit to $26.3bn because of unrealised gains on its investments in companies including Apple. Operating profit fell 10pc to $5.53bn.

An accounting rule requires Berkshire to report unrealised stock losses and gains with net results, causing huge swings that Mr Buffett considers meaningless. Berkshire posted a $49.7bn net loss in the first quarter.

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

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

However, that bump is likely to be temporary. Berkshire said Geico could suffer underwriting losses in the third and fourth quarters because it is giving $2.5bn of credits to customers who renew their car and motorcycle policies.

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

The group also repurchased shares worth a record $5.1bn in the quarter.