Berkshire Hathaway Reports Losses in Kraft Heinz Stake
Berkshire Hathaway revealed on Saturday that its investment in Kraft Heinz cost it $3.76 billion during the second quarter.
The company also saw a 4% dip in quarterly operating profits, primarily due to lower insurance underwriting premiums. The impact of its common stock and reduced profits contributed to a significant 59% decrease in overall net income.
This shows Berkshire’s ongoing caution in assessing market value amid uncertainties related to tariffs and overall economic growth.
In the same quarter, Berkshire reported record cash holdings of nearly $344.1 billion, while also selling more shares than it had in its previous string of 11 consecutive gains. Notably, it has not repurchased shares since May 2024.
Warren Buffett, who has led the Omaha-based company since 1965, is set to step down at the end of this year.
“We’ve been making a concerted effort to remain engaged with the market,” commented Kyle Sanders, an Edward Jones analyst. “Buffett seems to view the market as overvalued and is likely waiting for the right opportunity.”
Concerns regarding trade policies, especially tariffs, have created challenges, leading to delayed orders and diminished revenue from many of Berkshire’s consumer brands.
For instance, Jazwares, a maker of the popular Squishmallows toys, reported a hefty 38.5% revenue drop in the first half of the year.
Analysts described the overall performance as somewhat stagnant.
“Berkshire is at a critical turning point, both for the company and the economy,” said Cathy Seyfert, a research analyst at CFRA. “The combination of lackluster results and a management transition isn’t a positive sign.”
Buffett’s operating profit for the second quarter fell to about $7.76 billion, a decrease from $11.6 billion a year prior. The results were impacted by a currency loss of $877 million as the dollar weakened.
When factoring in profits and losses from investments in companies like Apple and American Express, net income dropped from $303.5 billion to $12.37 billion, with revenue slipping 1% to $925.2 billion.
Buffett often argues that understanding the ups and downs of unrealized investments, particularly in Berkshire stocks, can be tricky.
The $3.76 billion after-tax loss from Berkshire’s 27.4% stake in Kraft Heinz translates to a $5 billion loss before taxes.
While acknowledging that he recognized Kraft Heinz’s market value in his books, Berkshire’s long-term approach amidst economic uncertainties renders the current gap merely “temporary.” Following a $3 billion write-down in 2019, this latest write-down marks Berkshire’s second on Kraft Heinz.
Buffett had previously admitted that Berkshire overpaid in the 2015 merger of Kraft Foods and HJ Heinz.
Kraft Heinz is experiencing difficulties, with many consumers shifting towards healthier or private-label options. Their portfolio includes brands like Oscar Mayer, Kool-Aid, BelVita, and Jell-O.
In a different segment, Berkshire’s holding in Occidental Oil exceeds its fair value by $5.3 billion, yet no significant developments are anticipated.
Berkshire’s stock has fallen over 12%, trailing the S&P 500 by about 22 percentage points since Buffett’s departure announcement on May 3.
Vice President Greg Abel, 63, is slated to take over as CEO, although Buffett will remain as chairman.
Analysts suggested Buffett may have diminished the premium in Berkshire’s stock price, especially as growth in the insurance sector—Berkshire’s key profit area—might be slowing.
Lack of new investments has been a concern as well; analysts noted that Berkshire’s BNSF unit has recently agreed to buy Norfolk Southern and may pursue CSX to further expand its rail operations.
Over the past 60 years, Buffett has transformed Berkshire from a struggling textile company into a massive $1.02 trillion conglomerate, encompassing various consumer brands, insurance companies, utility firms, and more.
As for underwriting profits, they fell by 12% this quarter, mainly due to issues in the reinsurance sector and smaller insurance ventures.
GEICO, Berkshire’s flagship insurance company, managed a slight 2% rise in pre-tax underwriting profits and a 5% increase in premiums, though it reported modest growth in accident losses.
Auto insurers are feeling competitive pressure from State Farm and Progressive, which are focused on enhancing underwriting quality and technology.
Higher tariffs could create challenges for GEICO as rising auto part costs may lead to increased accident claim losses.
BNSF has also been tightening its belt, with reductions in fuel costs boosting quarterly profits by 19%, even though revenue and cargo volume stayed relatively stable.
Berkshire Hathaway Energy recorded a 7% increase in profits, and the company is currently assessing the implications of significant new legislation recently signed by President Trump.
