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Berkshire Hathaway CEO Warren Buffett slightly increased his stakes in Apple and Chevron.
Andrew Harrer/Bloomberg
Berkshire Hathaway
it is
Operating profits rose 39% in the second quarter, beating estimates, driven by strength in the company’s insurance and railroad businesses as well as strong growth in investment income.
The company continued to moderate its pace of stock buybacks from high levels in 2021, repurchasing just $1 billion of stock during the period, down from $3.2 billion in the first quarter and a rate of approximately $7 billion per quarter in 2021.
Berkshire Hathaway
(symbol: BRK/A, BRK/B) posted after-tax operating profit of $9.3 billion, compared to $6.7 billion in the second quarter of 2021. Earnings per Class A share increased by 43% to hit $6,312, beating the FactSet consensus of $5,393. per share.
CEO Warren Buffett is price-conscious with the Berkshire stock buyback and the company bought no shares in April when the stock was near a record high. Berkshire also did not buy shares in May, but resumed buybacks later in June.
Berkshire’s Class A shares ended Friday at $439,528 after peaking in late March at a record high of $544,000. The stock bottomed out in late June below $400,000. The stock is down about 2% this year.
Berkshire’s overall after-tax results showed a loss of $43.8 billion in the second quarter, compared with profits of $28.1 billion in the year-ago period. This was prompted by the fall in the stock market, which depressed the value of the company’s huge stock portfolio. That was around $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 stock holding, fell more than 20%.
Changes in portfolio value are included in Berkshire’s earnings based on accounting rules that Buffett says provide a misleading picture of the company’s financial health. It tells investors to focus on operating profits excluding changes in the value of the stock portfolio. With the stock market rallying in the current quarter, Berkshire’s third-quarter earnings should get a nice boost.
Berkshire significantly slowed its second-quarter stock purchases after a first-quarter buying spree when the company bought $51 billion in stock and net $41 billion after sales. Second-quarter purchases were $6 billion and sales about $2 billion, according to the Berkshire 10-Q regulatory filing that was released in conjunction with the results this morning.
Berkshire slightly increased its stake in
Apple
and
Chevron
in the second quarter, based on Barrons 10-Q analysis. We calculate that Berkshire bought about four million shares of
Apple
during the period, increasing its stake to 915 million shares valued at $125.1 billion on June 30. He bought about five million shares of
Chevron
,
increasing its stake to 164 million shares worth $23.7 billion on June 30.
Barrons estimates that Berkshire’s takeovers were modest in July, at around $500 million. We made this calculation based on a comparison of the number of shares outstanding listed in the 10-Q as of July 26 to the number of shares as of June 30.
The sharp rise in Berkshire’s after-tax operating profits in the quarter was driven by a nearly 10% rise in profits at its railroad business, Burlington Northern Santa Fe, to $1.7 billion and an increase of 54% of insurance underwriting profits, at $581 million.
Investment income rose 56% to $1.9 billion due to higher dividend income and higher interest rates. Berkshire is now generating significantly more revenue on its huge pile of cash and cash equivalents, thanks to the Federal Reserve’s moves to raise short-term rates. Berkshire’s cash and cash equivalents totaled $105 billion as of June 30, little change from $106 billion as of March 31.
Berkshire keeps most of its cash – some $74 billion – in US Treasuries. Berkshire posted a net profit of $1.1 billion in the second quarter due to the rise in the dollar, which effectively reduced the value of its non-dollar debt. Berkshire, for example, has yen-denominated debt to hedge currency risk in its Japanese equity investments. Berkshire’s earnings per share still exceed the consensus estimate when this currency factor is excluded from the results.
Berkshire’s book value was approximately $314,000 per Class A share on June 30 Barrons estimates, down from $345,000 as of March 31, reflecting the decline in the equity portfolio. The June estimate is in line with that of Edward Jones analyst James Shanahan.
Investors are more focused on the current book value, which has likely rebounded to around $342,000 per share recently, based on the rally in stocks, including Apple, and a current quarter earnings projection, according to Shanahan. Berkshire shares now trade 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 earning 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 become more active in its share buyback given the current valuation.
Write to Andrew Bary at andrew.bary@barrons.com