By Jonathan Stempel
(Reuters) -Warren Buffett’s Berkshire Hathaway on Saturday took a $3.76 billion writedown on its stake in Kraft Heinz, an acknowledgment the decade-old investment hasn’t worked out, and reported lower quarterly operating profit as insurance underwriting premiums declined.
Berkshire also reported a 59% decline in quarterly net income, reflecting the writedown, as well as lower investment gains from its common stock holdings.
The conglomerate run by Buffett since 1965 signaled it remains cautious about market valuations.
It reported a near-record $344.1 billion cash stake and an 11th straight quarter of selling more stocks than it bought. Through mid-July, Berkshire had also not repurchased its own stock since May 2024.
Second-quarter operating income fell 4% to $11.16 billion, or about $7,760 per Class A share, from $11.6 billion a year earlier.
Net income, including gains and losses on stocks such as Apple and American Express, fell to $12.37 billion from $30.35 billion. Revenue fell 1% to $92.52 billion.
Buffett has long urged investors to ignore investment gains and losses, which are reflected in net results, on stocks that Berkshire still owns and often has no plans to sell.
KRAFT HEINZ
The $3.76 billion after-tax writedown for Berkshire’s 27.4% stake in Kraft Heinz, equal to $5 billion before taxes, followed the struggling food company’s May announcement it would consider strategic alternatives, which could include a breakup.
Buffett’s company had been carrying Kraft Heinz on its books at above-market value but said economic and other uncertainties, as well as its longer-term plans to remain an investor, made the gap “other-than-temporary,” necessitating a writedown.
The writedown is Berkshire’s second for Kraft Heinz, following a $3 billion writedown in 2019. Buffett acknowledged at the time that Berkshire overpaid in the 2015 merger creating the food company.
Berkshire is also carrying its 28.1% stake in oil company Occidental Petroleum at $5.3 billion above fair value, but said it saw no need for a writedown.
Shares of Berkshire have fallen more than 12%, and lagged the Standard & Poor’s 500 by about 22 percentage points, since Buffett announced on May 3 he would step down as chief executive at the end of the year, with Vice Chairman Greg Abel replacing him.
Analysts have said the premium embedded in Berkshire’s stock price because of Buffett’s presence has eroded, while growth may slow in the insurance sector, a major Berkshire profit center.
A lack of new investments has also been a drag. Analysts believe Berkshire’s BNSF unit could buy CSX to create another transcontinental railroad, after Union Pacific agreed on July 29 to buy Norfolk Southern.
In his six decades running Berkshire, Buffett transformed it from a troubled and since-closed textile company into a $1.02 trillion conglomerate with nearly 200 businesses.
Berkshire owns several insurers and reinsurers, electric utility and renewable energy businesses, several chemical and industrial companies, and familiar consumer brands such as Dairy Queen, Fruit of the Loom and See’s Candies.
BIG BEAUTIFUL BILL IMPACT
Berkshire said the 12% quarterly decline in insurance underwriting profit stemmed primarily from reinsurance businesses and some smaller insurance businesses.
The best-known insurance unit, Geico car insurance, saw pre-tax underwriting profit rise 2%, as a 5% increase in premiums offset a smaller rise in accident losses.
Geico has ceded market share in recent years to State Farm and Progressive, as it focused on improving underwriting quality and technology while cutting jobs.
BNSF has also tried to reduce expenses, and lower fuel costs contributed to a 19% gain in quarterly profit.
The energy business, Berkshire Hathaway Energy, posted a 7% profit increase.
Berkshire said it is evaluating the impact of the One Big Beautiful Bill Act, signed last month by U.S. President Donald Trump, on the “economics and viability” of its renewable energy, storage and technology neutral projects.
Buffett is worth $141.7 billion according to Forbes magazine, despite having over two decades given away well over half his Berkshire shares to charity.
He is the world’s ninth-richest person, dropping a few notches during Berkshire’s recent share price decline.
(Reporting by Jonathan Stempel in New York; Editing by Alden Bentley and Susan Fenton)
