Berkshire Hathaway’s
operating earnings after taxes rose 6% to $10 billion in the second quarter, the company reported Saturday, marking a new quarterly record, while overall results swung to a profit of $35.9 billion from a loss of $43.6 billion in the year-earlier period due to gains in the company’s equity portfolio.
Berkshire’s (ticker: BRK.A, BRK.B) operating profits were boosted by strength in insurance underwriting and higher investment income.
Berkshire’s stock repurchases totaled $1.4 billion in the second quarter, compared with $4.4 billion in the first quarter and $1 billion for the year-earlier period.
CEO Warren Buffett is price-sensitive with share buybacks and may have reduced them in the second quarter from the first quarter due to the appreciation in Berkshire stock, which was up 10% in the second quarter. The second-quarter repurchases were below an estimate of $2.2 billion from UBS analyst Brian Meredith.
Investors focus on Berkshire’s stock repurchases as an indication of whether Buffett views the stock as cheap. The class A shares recently hit a record high and finished Friday at $533,600 after dropping 1.4% in the session.
Operating earnings per class A share totaled about $6,928, up 8% from the year-earlier period, easily topping the FactSet consensus of $5,576 per share, Barron’s estimates, and setting a new quarterly record.
Buffett tells investors to focus on the operating earnings that excludes changes in the value of Berkshire’s roughly $353 billion equity portfolio that need to be included in earnings based on accounting rules.
Overall earnings of $35.9 billion in the second quarter included investment gains of $25.9 billion, while the year-ago quarter showed losses of $53 billion due to weakness in the stock market.
Berkshire benefited in the latest quarter from appreciation in its equity portfolio largely due to strength in
Apple
(AAPL), which accounts for half of it. Apple rose 17% in the second quarter.
The Berkshire 10-Q filing, also released Saturday, indicates that the company pared its big equity stake in
Chevron
(CVX) to about 123 million shares on June 30 from 132 million on March 31, after cutting that holding by about 35 million shares in the first quarter.
Berkshire held $19.4 billion of the big energy company on June 30. Berkshire’s largest equity holding, Apple, was unchanged in the second quarter, remaining at about 915 million shares worth $177.6 billion, or about half the company’s equity portfolio..
Berkshire was sitting on $147 billion of cash and equivalents on June 30, mostly U.S. Treasury bills, compared with $130 billion at the end of March. The higher cash position reflected sales of stocks by Berkshire in the period.
Berkshire’s asset base topped $1 trillion in the second quarter, ending the period at $1.04 trillion. That’s a notable milestone for a company that had less than $30 million of assets in 1964, just before Buffett, 92, took control in 1965. Berkshire’s shareholder equity stood at $540 billion at the end of second quarter, up from $22 million in 1964.
Berkshire appears to have repurchased a modest, additional $90 million of shares in July based on the number of outstanding shares on July 26, the date of the 10-Q report, Barron’s estimates.
Berkshire’s appetite for stocks was muted in the second quarter. It was a net seller of about $8 billion of stocks after being a net seller of about $10 billion in the first quarter, Barron’s estimates based on its cash-flow statement in the 10-Q. Berkshire sold some stock in
Activision Blizzard
(ATVI) in the second quarter. So far this year, Berkshire has bought $7.4 billion of stocks while selling $25.8 billion.
Berkshire’s second-quarter earnings performance was particularly impressive because it had $465 million of foreign-exchange profits in the latest period, against $1.1 billion in the year-earlier period. Those profits reflected the dollar’s rise against the Japanese yen, which reduces the value of Berkshire’s yen debt. Investors probably should strip out those forex profits from the company’s operating results because they are non-recurring.
Berkshire’s second quarter earnings benefited from higher insurance underwriting profits, which rose to $1.2 billion from about $700 million in the year-earlier period.
Berkshire’s Geico auto insurance business was a key contributor, swinging to an underwriting profit of about $500 million in the second quarter from a similarly sized loss in the year-earlier quarter.
Geico and other auto insurers are aggressively raising prices to offset much higher claims costs, reflecting elevated expenses to repair damaged cars. Geico’s premium per policy was up 16.3% in the second quarter, but it experienced a 14% drop in policies in force compared with the year-earlier period. Geico is investing in its systems to better compete against its arch rival
Progressive
(PGR).
Insurance investment income was up to $2.4 billion in the second quarter from $1.9 billion in the year-earlier period, reflecting higher interest income on Berkshire’s huge holding of cash and equivalents, mostly U.S. Treasury bills.
Berkshire’s Burlington Northern Santa Fe railroad business experienced a 24% decline in second quarter operating income to $1.26 billion after taxes, reflecting lower freight volumes and higher non-fuel operating expenses.
Earnings at Berkshire’s big utility, Berkshire Hathaway Energy, were little changed at $785 million in the second quarter after taxes, compared with $789 million in the year-earlier quarter.
Berkshire’s insurance float totaled $166 billion on June 30, up $2 billion so far this year.
Write to Andrew Bary at [email protected]
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