Warnings about the “nightmare” related to the changes in the new accounting rules have been issued earlier by Warren Buffett. And now it’s beginning.
In the first quarter a $1.14 billion loss at Buffett’s Berkshire Hathaway Inc. was reported by the Omaha, Nebraska-based company mainly because of the rules the mandate reporting of unrealized gains or losses in equity investments in net income by Berkshire. The company said in a statement that this was the first net loss of for it since 2009.
The “requirement will produce some truly wild and capricious swings in our GAAP bottom line,” Buffett had warned in his annual letter to shareholders released in February. He further hd said that the accounting change “will severely distort Berkshire’s net income figures and very often mislead commentators and investors.”
Because of the fact that there can be fluctuations in the more than $170 billion stock portfolio of Berkshire from one quarter to another, therefore a better barometer of company performance is operating results, Buffett has said. Driven by a profit in the insurance underwriting following a difficult 2017, there was a 49 per cent jump in the operating profit for the company to touch $5.29 billion during the first quarter. This figure doesn’t include the accounting changes.
According to a regulatory filing, gaining an underwriting profit by the company was helped by a 16 per cent increase in revenue at auto insurer Geico. Premiums were pushed higher as Geico because of rate increases. A rise in fuel prices resulted in increased revenues per car in the railroad business which also posted a gain in profit.,
In what was a first time decline in two years, there was a fall in the cash pile of Berkshire, falling from the record $116 billion at year-end to $109 billion at the end of March. the key to increasing earnings over time is investing the cash into new, large acquisitions, Buffett has said. Expenditure of over $12 billion on purchase of more Apple Inc. shares was the primary reason for the drop in the first quarter.
The value of Apple stakes with the company was reported to be at $40.7 billion as of 31 March which is a significant increase compared to the value of $28.2 billion at the end of 2017. In the first quarter, Berkshire had purchased an additional 75 million shares of the technology company, Buffett said in a television interview which was aired on Friday. Because of a fall of 20 per cent in the shares of Kraft Heinz Co, the fair value of its investment in the first quarter there fell by over $5 billion to touch $20.3 billion, Berkshire said.
(Adapted from LiveMint.com)