OMAHA, Neb. – Warren Buffett took a pessimistic tone about Berkshire Hathawayfrom a myriad of companies on Saturday, saying it expects lower profits in light of an economic slowdown.
“In the general economy, the feedback we’re getting is that, I would say, maybe the majority of our companies will actually report lower earnings this year than they did last year,” said the “Oracle of Omaha’ to tens of thousands of shareholders at Berkshire’s 2023 annual meeting.
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So far, Berkshire has performed well despite a difficult macroeconomic environment, with operating profit up 12.6% in the first quarter. This strong performance was driven by a rebound in the conglomerate’s insurance business. Overall profit also rose strongly thanks in part to gains in its equity portfolio, led by Apple. Berkshire’s rail business, BNSF, as well as its energy company saw lower year-over-year profits last quarter.
The 92-year-old investment icon believes some of his managers at Berkshire subsidiaries have been caught off guard by rapidly changing consumer behavior as they put the Covid-19 pandemic behind them. This caused them to overestimate the demand for certain products, and now they will need sales to get rid of excess inventory.
“It’s a different climate than six months ago. And a number of our managers were surprised,” Buffett said. “Some of them had too much stock on order, and then all of a sudden they were delivered, and people weren’t in the same mindset as before.”
The U.S. economy is grappling with a series of aggressive rate hikes, which in part triggered three bank failures in just a few weeks due to asset-liability mismatches. The Federal Reserve just approved its 10th rate hike since 2022, taking the federal funds rate to a target range of 5% to 5.25%, the highest since August 2007.
“It was more extreme in World War II, but it was extreme this time,” Buffett said.