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Supply chain problems crimp profit at Buffett’s Berkshire Hathaway; cash sets record

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November 6, 2021

By Jonathan Stempel

(Reuters) -Warren Buffett’s Berkshire Hathaway Inc said on Saturday that disruptions to the global supply chain kept a lid on its ability to generate profit, while rising equity prices caused it to sell some stocks and boost its cash hoard to a record.

Operating profit fell short of analyst forecasts, hurt by the disruptions as well as costs associated with Hurricane Ida and flooding in Europe, causing underwriting losses at the Geico car insurer and other insurance businesses to more than triple.

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Berkshire also said it repurchased $7.6 billion of its own stock in the third quarter and $20.2 billion this year, reflecting its need to deploy cash as stock markets set new highs and purchases of whole companies appear too expensive.

The repurchases, which appeared to continue in October, suggest Buffett sees greater value in his Omaha, Nebraska-based conglomerate, whose businesses include the BNSF railroad and namesake energy unit, than in others.

Indeed, Berkshire ended September with $149.2 billion of cash and equivalents, and sold about $2 billion more stock than it bought in the quarter.

Buybacks are “a great outlet to address shareholder pressure to add value,” said Tom Russo, a partner at Gardner Russo & Quinn in Lancaster, Pennsylvania, which has owned Berkshire stock since 1982.

“The supply chain creates choke points that inevitably will affect loads at Berkshire’s railroad, and is creating shortages in its housing businesses,” he added.

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Many companies have said the resurgence in COVID-19 cases fueled by the Delta variant stretched global supply chains, causing shortages in goods and crimping consumer spending.

U.S. gross domestic product increased https://www.reuters.com/business/us-economy-slows-sharply-third-quarter-weekly-jobless-claims-new-19-month-low-2021-10-28 at a 2% annualized rate from July to September, according to the government’s advance estimate, down from 6.7% in the second quarter.

Berkshire said supply chain disruptions have boosted prices for materials and freight, forcing businesses such as Clayton Homes mobile homes and Acme bricks to raise prices, and caused a shortage of truck drivers at McLane grocery distribution.

It also said disruptions have boosted costs at its consumer products businesses, though profits are rising at its Forest River RV, Brooks running shoes and Duracell battery units.

PROFIT FALLS SHORT

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Third-quarter operating profit rose 18% to $6.47 billion, or about $4,331 per Class A share, from $5.48 billion a year earlier, but fell short of the $4,493 per share forecast by analysts according to Refinitiv I/B/E/S.

Net income declined 66% to $10.3 billion, or $6,882 per Class A share, from $30.1 billion, reflecting lower unrealized gains on Berkshire’s common stock holdings including Apple Inc and Bank of America Corp.

Buffett, the 91-year-old billionaire, believes the huge quarterly swings in net results are usually meaningless, and result from accounting rules he doesn’t control.

The share repurchases boosted total buybacks to around $45 billion since the end of 2019. Berkshire’s share count declined further in October, suggesting it repurchased at least another $1.7 billion of its own stock.

Buffett’s inactivity in purchasing stocks and whole companies has disappointed some investors and analysts.

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It stems in part from the role of special purpose acquisition companies (SPACs), which take private companies public, in driving up prices of acquisition targets.

“It’s a killer,” Buffett said at Berkshire’s annual meeting on May 1.

Despite the supply chain pressures, quarterly profit at BNSF rose 14% to $1.54 billion, as higher shipping volume of consumer goods, industrial goods and coal offset lower grain exports.

Geico, meanwhile, posted a $289 million pretax underwriting loss, hurt by Ida and an increase in vehicle crashes.

(Reporting by Jonathan Stempel in New York; Editing by Mike Harrison, David Holmes and Grant McCool)

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Buying the Omicron dip

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November 29, 2021

A look at the day ahead from Danilo Masoni.

Sell first, get answers later. With stocks near lifetime peaks, the Black Friday reaction to the new fast-spreading virus strain Omicron was hardly surprising.

But a weekend later, investors look heavily engaged in buying the dip, as markets take a more balanced view of risks attached to what the WHO called a “variant of concern”.

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After their ninth biggest drop ever on Friday, gains in crude prices topped 5% earlier in Asia and stock futures point to a solid bounce across Europe and America.

A South African doctor said patients with Omicron have “very mild” symptoms and investment houses don’t look to have budged that much. Credit Suisse, for example, made no portfolio changes, staying slight overweight on equities.

Perhaps more telling is that retail traders poured north of $2 billion into U.S. stocks on Friday, setting the second biggest daily inflow on record, per Vanda Research data.

Of course there are uncertainties and that will likely make for volatile days heading into the Christmas shopping season.

Understanding the level of severity of the variant “will take days to several weeks”, said WHO. And vaccine maker BioNTech needs up to two weeks to figure out whether the shot it makes with Pfizer needs to be reworked.

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So while Omicron has spread from Australia to the Netherlands and governments ban travel and mull lockdowns, markets may also gamble on central bankers turning more patient in their path towards rates normalisation.

Lots of speakers from the Federal Reserve and the European Central Bank are lined up for today. On Sunday, speaking about risks to the recovery, ECB’s Lagarde said: “We now know our enemy and what measures to take.”

Key developments that should provide more direction to markets on Monday:

* ECB speakers: Governor Lagarde, ECB board members AndreaEnria, Isabel Schnabel, Pentti Hakkarainen; ECB Vice PresidentLuis de Guindos * Euro zone consumer sentiment/inflation expectations * German preliminary CPI/HICP * Fed speakers: Chairman Jerome Powell, New York PresidentJohn Williams, Governor Bowman * Emerging markets: Kenya central bank meets; Turkey tradebalance and bank NPL ratios (This story refiles to fix chart)

(Reporting by Danilo Masoni; Editing by Saikat Chatterjee)

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UK regulator set to block Meta’s Giphy deal – FT

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November 29, 2021

(Reuters) -The UK competition regulator is expected to block Meta Platforms’ acquisition of online GIF platform Giphy in the coming days, the Financial Times reported https://www.ft.com/content/662c8e3f-4909-4bec-9131-c0237bb4897d on Monday.

The Competition and Markets Authority is set to reverse the deal in what would be the first time the watchdog has reversed a Big Tech acquisition, the report said, citing individuals close to the matter.

Meta Platforms and the regulator did not respond to requests for comment from Reuters sent outside working hours.

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The regulator had in October fined the U.S. social media giant Facebook, now Meta, 50.5 million pound ($67.35 million) for breaching an order that was imposed during an investigation into its purchase of the GIF platform, Giphy.

Facebook bought Giphy, a website for making and sharing animated images, or GIFs, in May last year to integrate it with its photo-sharing app, Instagram. The deal was then pegged at $400 million by Axios.

($1 = 0.7499 pounds)

(Reporting by Sneha Bhowmik in Bengaluru; Editing by Uttaresh.V)

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Evergrande shares fall after chairman cuts stake; Fantasia suspends trading

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November 29, 2021

HONG KONG (Reuters) – Shares in China Evergrande Group fell as much as 4.8% on Monday morning, after its chairman trimmed his stake in the cash-strapped property developer to raise about $344 million.

The group’s electric vehicle unit, China Evergrande New Energy Vehicle Group Ltd, also dropped more than 5% after it said the company was still exploring ways to pump capital into the unit with different investors.

Evergrande has been scrambling to raise capital as it grapples with more than $300 billion in liabilities and Chinese authorities have told its chairman, Hui Ka Yan, to use some of his personal wealth to help pay bondholders, sources have said.

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Evergrande failed to pay coupons totalling $82.5 million due on Nov. 6 and investors are on tenterhooks to see if it can meet its obligations before a 30-day grace period ends on Dec 6.

The developer disclosed late on Friday that Hui had sold 1.2 billion shares in the company at an average price of HK$2.23 each, lowering his stake in the Shenzhen-based real estate developer to 67.9% from 77%.

Once China’s top-selling developer, Evergrand’e troubles have hit the broader Chinese property sector with a string of debt defaults and credit rating downgrades of its peers in the last couple of months.

Fantasia Holdings suspended trading in company shares on Monday pending release of information. On Thursday, the developer said a winding-up petition was filed against a unit related to an outstanding loan.

(Reporting by Sumeet Chatterjee; Editing by Stephen Coates)

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