Pandemic punishes Warren Buffett as Berkshire Hathaway takes big writedown

Warren Buffett, chairman and CEO of Berkshire Hathaway, takes his seat to speak at the Fortune's Most Powerful Women's Summit in Washington

Berkshire Hathaway Inc (BRKa.N) on Saturday announced a $9.8 billion writedown for its Precision Castparts aircraft and industrial parts business, as the coronavirus pandemic punished Warren Buffett’s largest acquisition and caused 10,000 job losses.

Berkshire, which acquired Precision for $32.1 billion in 2016, said COVID-19 caused airlines to slash aircraft orders, resulting in significantly less demand for Precision’s products and causing revenue to fall by about one third.

It said Precision’s results may continue suffering as the unit undertakes an “aggressive restructuring” to shrink operations to meet lower expected future demand.

Precision ended 2019 with 33,417 employees, meaning it has since shed about 30% of its workforce.

Berkshire said it also took a $513 million charge on its 26.6% stake in Kraft Heinz Co (KHC.O), which on July 30 took writedowns on several of its businesses, including its Maxwell House and Oscar Mayer brands.

The charges cut into Berkshire’s bottom line, though the Omaha, Nebraska-based conglomerate nevertheless posted an 87% increase in second-quarter net income because of unrealized gains in its common stock investments such as Apple Inc (AAPL.O)

Berkshire said it repurchased $5.1 billion of stock in the quarter, the most since it loosened its buyback policy in 2018, and confirming its hint in a July 8 regulatory filing that it had become more aggressive with buybacks.

Quarterly net income rose to $26.3 billion, or $16,314 per Class A share, from $14.07 billion, or $8,608 per share, a year earlier.

An accounting rule requires Berkshire to report unrealized stock losses and gains with net results, causing huge swings that Buffett considers meaningless. Berkshire had posted a $49.75 billion net loss in the first quarter.

Second-quarter operating profit fell 10% to $5.53 billion, or about $3,463 per Class A share, from $6.14 billion, or $3,757 per share, a year earlier.

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

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