operating profits rose 39% in the second quarter, topping estimates, on strength in the company’s insurance and railroad businesses as well as sharply higher investment income.
The company continued to moderate its pace of share repurchases from elevated levels in 2021, buying back just $1 billion ofstock in the period, down from $3.2 billion in the first quarter and arate of about $7 billlion a quarter during 2021.
(ticker: BRK/A, BRK/B) had after-tax operatingprofits of $9.3 billion, up from the $6.7 billion in the secondquarter of 2021. Profits per class A share increased 43% to $6,312,topping the FactSet consensus of $5,393 per share.
CEO Warren Buffett is price conscious with Berkshire’s stockbuyback and the company didn’t buy any shares in April, when thestock was near a record high. Berkshire also didn’t buy stock in May,but resumed the buybacks later in June.
Berkshire’s class A shares ended Friday at $439,528 afterpeaking in late March at a record $544,000. The stock bottomed in lateJune under $400,000. The stock is down about 2% this year.
Berkshire’s overall after-tax profits showed a loss of $43.8 billion inthe second quarter, compared with profits of $28.1 billion in the year-earlier period. This was driven by the drop in the stock market, whichdepressed the value of the company’s huge equity portfolio. Thatstood at about $328 billion at the end of June, down from $390 billionon March 31. The S&P 500 fell 16% in the second quarter and
(AAPL), Berkshire’s largest equity holding, was down over20%.
Changes in the value of the portfolio are included in Berkshire’searnings based on accounting rules that Buffett has said offer amisleading picture of the company financial health. He tells investors tofocus on the operating earnings excluding changes in the value of thestock portfolio. With the rally in the stock market in the current quarter,Berkshire’s third-quarter profits should get a nice boost.
Berkshire dramatically slowed its purchases of equities in thesecond quarter after a buying spree in the first quarter when thecompany bought $51 billion of stocks and a net $41 billion after sales.Purchases in the second quarter were $6 billion and sales about $2billion, according to the Berkshire 10-Q regulatory filing that was released inconjunction with the earnings this morning.
Berkshire added slightly to its stake in
in thesecond quarter, based on Barron’s analysis of the 10-Q.We calculate that Berkshire bought about four million shares of
in the period, bringing its stake to 915 million shares valued at$125.1 billion on June 30. It bought around five million shares of
lifting its stake to 164 million shares worth $23.7 billion onJune 30.
Barron’s estimates that Berkshire’s buybacks were modest in July,at about $500 million. We made this calculation based on a comparisonof the share count outstanding listed in the 10-Q as of July 26 versusthe share count on June 30.
Berkshire’s strong gain in after-tax operating profits in thequarter was driven by a nearly 10% increase in earnings at its railroadbusiness, Burlington Northern Santa Fe, to $1.7 billion and a 54%increase in insurance underwriting profits, to $581 million.
There was a 56% increase in investment income, to $1.9billion, reflecting higher dividend income and higher interest rates.Berkshire now is generating much more income on its huge pile of cashand equivalents, thanks to the Federal Reserve’s moves to boost short-term rates. Berkshire’s cash and equivalents totaled $105 billion onJune 30, little changed from the $106 billion on June 30.
Berkshire keeps the bulk of its cash—some $74 billion—in U.S. Treasury bills.Berkshire recorded $1.1 billion of net income in the secondquarter due to the rise in the dollar, which effectively reduced the valueof its nondollar debt liabilities. Berkshire, for instance, has yen-denominated debt to hedge the currency risk in its investments inJapanese stocks. Berkshire profits per share still topped the consensus estimate when that foreign-exchange factor is stripped out of the results.
Berkshire’s book value stood at about $314,000 per class A shareon June 30, Barron’s estimates, down from $345,000 on March 31,reflecting the drop in the equity portfolio. The June estimate is in line with one from Edward Jones analyst James Shanahan.
Investors are more focused on current book value, which likely has rebounded to about $342,000 a share recently, based on the rally in stocks, notably Apple, and a projection of current-quarter earnings, according to Shanahan.Berkshire stock now trades at 1.3 times that 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 power and increased investment activity this year.Berkshire has accumulated an $11 billion stake in Occidental Petroleum,among other notable investments. Berkshire holders would like to see the company get more active on its stock buyback in view of the current valuation.
Write to Andrew Bary at [email protected]