Font size
Berkshire Hathaway CEO Warren Buffett added to the stakes in Apple and Chevron.
Andrew Harrer/Bloomberg
Berkshire Hathaway
‘s
corporate profits rose 39% in the second quarter, exceeding estimates, thanks to the company’s strong insurance and rail operations and substantially higher investment income.
The company continued to moderate the pace of its share repurchases in 2021, buying back just $1 billion in shares in the period, down from $3.2 billion in the first quarter and a rate of about $7 billion per quarter in the quarter. 2021.
Berkshire Hathaway
(ticker: BRK/A, BRK/B) had after-tax operating profit of $9.3 billion, up from $6.7 billion in the second quarter of 2021. Earnings per Class A share increased 43% to $6,312, surpassing the FactSet consensus of $5,393 per share.
CEO Warren Buffett is price conscious with Berkshire’s share buyback, and the company did not buy any shares in April, when the stock nearly hit an all-time high. Berkshire also did not buy shares in May, but resumed the buyback later in June.
Berkshire’s Class A shares ended Friday at $439,528 after peaking in late March at a record $544,000. The stock fell below $400,000 in late June. The stock has fallen about 2% this year.
Berkshire’s total after-tax profit showed a loss of $43.8 billion in the second quarter, compared to a profit of $28.1 billion in the prior period. This was driven by the stock market decline, which depressed the value of the company’s huge stock portfolio. That stood at about $328 billion at the end of June, down from $390 billion on March 31. The S&P 500 fell 16% in the second quarter and
Apple
(AAPL), Berkshire’s largest equity stake, fell more than 20%.
Changes in portfolio value are included in Berkshire’s earnings based on accounting rules that Buffett says paint a misleading picture of the company’s financial health. He tells investors to focus on operating profit, excluding changes in stock portfolio value. With the stock market rally in the current quarter, Berkshire’s third-quarter earnings should get a nice boost.
Berkshire slashed share purchases in the second quarter after a buying frenzy in the first quarter, when the company bought $51 billion in shares and $41 billion net after sales. Second quarter purchases were $6 billion and sales were about $2 billion, according to the Berkshire 10-Q regulatory filing released this morning along with earnings.
Berkshire added to its stake in
Apple
and
Chevron
in the second quarter, based on Barron’s analysis of the 10-Q. We calculate that Berkshire bought about four million shares of
Apple
in the period, bringing its stake to 915 million shares worth $125.1 billion as of June 30. It bought about five million shares of
Chevron
,
On June 30, it increased its stake to 164 million shares worth $23.7 billion.
Barron’s estimates Berkshire’s buybacks were modest in July, at about $500 million. We made this calculation based on a comparison of the number of shares outstanding in the 10-Q on July 26 versus the number of shares on June 30.
Berkshire’s strong after-tax corporate profits in the quarter were driven by a nearly 10% increase in profits at its rail operations, Burlington Northern Santa Fe, to $1.7 billion and a 54% increase in underwriting profits. to $581 million.
Investment income rose 56% to $1.9 billion, driven by higher dividend income and higher interest rates. Berkshire is now generating much more income on its huge pile of cash and equivalents, thanks to the Federal Reserve’s moves to raise short-term interest rates. Berkshire’s cash and equivalents totaled $105 billion as of June 30, little change from June 30’s $106 billion.
Berkshire keeps most of its cash – some $74 billion – in US Treasury bills. Berkshire posted $1.1 billion in net income in the second quarter as a result of the appreciation of the dollar, which effectively reduced the value of its non-dollar debt obligations. For example, Berkshire has denominated debt in yens to hedge the currency risk of its investments in Japanese equities. Berkshire’s earnings per share still exceeded the consensus estimate when that exchange rate factor is removed from the results.
Berkshire’s book value as of June 30 was approximately $314,000 per Class A share. Barron’s estimates, down $345,000 as of March 31, reflecting the decline in the stock portfolio. June’s estimate is in line with that of Edward Jones analyst James Shanahan.
Investors are more focused on its current book value, which Shanahan said has likely bounced back to about $342,000 a share recently, based on the rally in stocks, especially Apple, and a profit forecast for the current quarter. Berkshire shares now trade at 1.3 times their current book value, which is below the 1.4 times average in recent years.
Many Berkshire holders view the current valuation as attractive given the company’s growing earnings potential and increased investment activity this year. Berkshire has built up an $11 billion stake in Occidental Petroleum, among other notable investments. Berkshire holders would like to see the company become more active in share buybacks given its current valuation.
Write to Andrew Bary at [email protected]
.
