Buffett's Berkshire Hathaway, hit by accounting change, reports net loss of $1.1 billion

Adam Shell | USA TODAY

Show Caption Hide Caption Why Warren Buffett finally bit on Apple Buffett's Berkshire Hathaway just bought 75 million more shares of the iPhone maker.

Billionaire Warren Buffett's warning that a new accounting change would cause "truly wild swings" in his company's quarterly earnings is now a reality.

Berkshire Hathaway reported a rare net loss of $1.1 billion in the first quarter, but the decline was due largely to a new rule that requires it to report unrealized gains or losses in stock investments as net income. Berkshire reported a $6.3 billion loss in investment income in the first three months of the year.

The swing to a loss – Berkshire's first quarterly loss since 2009, according to Bloomberg – wasn't entirely unexpected.

In his annual letter to shareholders in February, Buffett warned that the new reporting rule would produce some "truly wild and capricious swings." He also noted that "gyrations of that magnitude will swamp the truly important numbers that describe our performance."

In a statement accompanying today's earnings report, Buffett, the firm's chairman and CEO, urged investors to focus on Berkshire's operating businesses and not earnings results based on fluctuations in its nearly $173 billion stock portfolio. He says the stock portfolio can see fluctuations of up to $10 billion in any given quarter.

"The amount of investment gains or losses in any given quarter is usually meaningless," the legendary investor wrote in the earnings release.

In addition to its huge stock holdings, Berkshire owns roughly five dozen businesses in industries ranging from railroads and retail to auto insurance and industrial manufacturers. His stable of well-known brands include ice cream retailer Dairy Queen, battery-maker Duracell and auto insurer GEICO.

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Berkshire's net income suffered a wild swing. The first-quarter loss of $1.1 billion compares to a $4.1 billion profit in the first quarter of 2017.

The company reported first-quarter revenues of $58.5 billion, a shade below Wall Street expectations of $58.7 billion — and down 9.1% from $64.4 billion in the same period a year ago.

The company's reported "operating earnings" – which strips out certain charges that are not reflective of the overall health of the business, such as some investment results – painted a more upbeat profit picture. Berkshire's reported operated earnings of $5.3 billion, were up nearly 49% from $3.6 billion a year ago.

Its insurance underwriting unit posted operating earnings of $407 million after a loss in the final quarter of 2017 due to claim payouts due to hurricanes and other catasrophes. Buffett's railroad, utilities and energy units posted operating earnings of $1.7 billion, up 31% from a year ago.

Last year, Berkshire Hathaway posted net earnings of $44.9 billion, but nearly two-thirds of the gain came from a one-time $29 billion tax windfall from the new tax law passed by Congress in December that reduced the corporate income tax rate from 35% to 21%.

Next up for Berkshire and Buffett today is the company's closely followed annual shareholder meeting, dubbed the "Woodstock of Capitalism," which gets underway later this morning in the billionaire investor's hometown of Omaha, Nebraska..

The main event is a daylong question-and-answer session where Buffett, 87, and vice chairman Charlie Munger, 94, will field questions from an estimated crowd of 40,000 on topics ranging from who will run the conglomerate when Buffett leaves the stage and how they plan to deploy a cash hoard that hit a record $116 billion at the end of last year.

Buffett made big news ahead of the meeting, telling CNBC that Berkshire had bought 75 million more shares of Apple in the first quarter, raising its total stake in the iPhone maker to nearly 242 million shares. The Apple stake is valued at roughly $44 billion. Apple is now Berkshire's No.1 stock holding, eclipsing long-time top holding Wells Fargo.

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