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Berkshire Hathaway CEO Warren Buffett slightly increased his stakes in Apple and Chevron.
Andrew Harrer/Bloomberg
Berkshire Hathaway
with ‘
operating profit rose 39% in the second quarter, beating estimates, thanks to the company’s strong insurance and rail businesses, as well as sharply higher investment income.
The company continued to slow its pace of share buybacks from high levels in 2021, buying back just $1 billion of shares in the period, down from $3.2 billion in the first quarter and a rate of about $7 billion per quarter in 2021.
Berkshire Hathaway
(ticker: BRK/A, BRK/B) had after-tax operating earnings of $9.3 billion, up from $6.7 billion in the second quarter of 2021. Earnings per Class A share rose 43% to $6,312, surpassing the FactSet consensus of $5,393 per share.
CEO Warren Buffett has been price-conscious with Berkshire’s stock buybacks, and the company didn’t buy any shares in April when the stock was near a record high. Berkshire also did not buy shares in May, but resumed buying back later in June.
Berkshire’s Class A shares closed Friday at $439,528 after peaking in late March at a record $544,000. The stock bottomed in late June below $400,000. The stock is down about 2% this year.
Berkshire’s total after-tax earnings showed a loss of $43.8 billion in the second quarter, compared with earnings of $28.1 billion in the year-earlier period. This was due to the fall in the stock market, which reduced 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
An apple
( AAPL ), Berkshire’s largest stock holding, fell more than 20%.
Changes in the portfolio’s value are factored into Berkshire’s earnings based on accounting rules that Buffett says offer a misleading picture of the company’s financial health. It tells investors to focus on operating earnings, discounting changes in the value of a portfolio of stocks. With the stock market rallying this quarter, Berkshire’s third-quarter earnings should get a nice boost.
Berkshire dramatically slowed its share purchases in the second quarter after a buying spree in the first quarter, when the company bought $51 billion in stock and netted $41 billion after sales. Second-quarter purchases were $6 billion and sales about $2 billion, according to Berkshire’s 10-Q regulatory filing, which was released with earnings this morning.
Berkshire slightly increased its stake in
An apple
and
Chevron
in the second quarter, on Barron’s 10-Q analysis. We estimated that Berkshire bought about four million shares of the
An apple
during the period, reaching 915 million shares as of June 30, valued at $125.1 billion. He bought about five million shares of
Chevron
,
increasing its stake to 164 million shares worth $23.7 billion as of June 30.
Barron’s estimates that 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 reported in the July 26 10-Q to the number of shares outstanding on June 30.
Berkshire’s strong growth in after-tax operating profits in the quarter was driven by a nearly 10% increase in profits at its rail business, Burlington Northern Santa Fe, to $1.7 billion and a 54% increase in insurance profits to $581 million .
There was a 56% increase in investment income to $1.9 billion, reflecting higher dividend income and higher interest rates. Berkshire is now generating much more revenue from its huge pile of cash and cash equivalents, thanks to the Federal Reserve’s move to raise short-term interest rates. Berkshire’s cash and cash equivalents stood at $105 billion on June 30, which was little changed from $106 billion on June 30.
Berkshire holds most of its cash — about $74 billion — in U.S. Treasury bills. Berkshire posted $1.1 billion in net income in the second quarter due to a stronger dollar that effectively reduced the value of its non-dollar liabilities. Berkshire, for example, has yen-denominated debt to hedge currency risk in its investments in Japanese stocks. Berkshire’s earnings per share still beat the consensus estimate when that foreign currency factor is removed from the results.
Berkshire’s book value was about $314,000 per Class A share on June 30, Barron’s forecasts, down from $345,000 on March 31, reflecting the decline in the equity portfolio. The estimate for June was in line with that of Edward Jones analyst James Shanahan.
Investors are more focused on the current book value, which has likely recovered to about $342,000 per share recently, based on the rally in stocks, particularly Apple, and the current quarter’s earnings forecast, according to Shanahan. Berkshire’s stock now trades at 1.3 times current book value, which is below the average of 1.4 times in recent years.
Many Berkshire holders view the current valuation as attractive given the company’s growing earnings strength and increased investment activity this year. Berkshire amassed an $11 billion stake in Occidental Petroleum, among other notable investments. Berkshire’s holders would like the company to become more active in its share buybacks given the current valuation.
Write to Andrew Barry at andrew.bary@barrons.com
