This past Friday, Berkshire Hathaway provided its second-quarter earnings report and profits soared by 41% to reach a record high. This reflects substantial gains in investments, plus improved manufacturing, retail and service business results.
“It’s clear that Warren Buffett’s bet on the US economy is paying off,” said Michael Yoshikami, the president of Destination Wealth Management based out of Walnut Creek, California, and a longtime investor in Berkshire Hathaway.
The company’s net income rose to $6.4 billion, or on a per-share basis, $3889 per Class A share from the previous $4.54 billion, or $2763 per Class A share, just the yearly or.
The quarterly profit rose by 11% to reach $4.33 billion, or $2634 per Class A share, from $2384 per Class A share, or to put it another way, $3.92 billion.
According to Thomson Reuters, analysts believe that on average that the operating profit would have been $2482 per Class A share.
And to use Buffett’s preferred measure of growth, book value per share, it has risen by 5.6% this year to reach $142,483.
These results include that Berkshire Hathaway made investment gains of $1.96 billion. Berkshire sold $2.86 billion in equities during the quarter, and this included a swap of a 40 year investment that they had in the Washington Post publisher Graham Holdings Co., and they did so to get a Miami TV station as well as other assets.
The accounting rules require that Berkshire Hathaway, based out of Omaha, Nebraska, report these sums with earnings, even though Warren Buffett often considers the amount within a quarter to be meaningless. Berkshire Hathaway actually owns over 80 businesses in sectors including chemicals, clothing, food, railroads, energy and insurance. Analysts believe that Berkshire Hathaway’s increasing diversification over the many years has caused the company’s fortunes to be more closely tied to the economy. The Commerce Department had a report saying the US economy grew at a 4% annual rate from April to June.
The diversification at Berkshire Hathaway helped during this quarter. Insurance profits fell by 8% – and that’s the best known business sector for the company – but earnings in other areas grew by more than 20%.
Burlington Northern Santa Fe Disappoints & GEICO Grows
For the retail, service and manufacturing operations at Berkshire Hathaway, the profit in these areas grew by 29%, with examples in the Forest River recreational vehicle unit and Lubrizol chemicals unit.
As far as apparel goes, pretax profit doubled. This was helped a great deal by lower pension and manufacturing costs at Fruit of the Loom.
In the utilities and energy businesses, profit has increased by 34%. This largely reflects the year-end purchase of NV Energy based out of Nevada.
Burlington Northern Santa Fe railroad grew profits by 4%, but there was disappointment at Berkshire Hathaway, saying, “Service levels continued to be well below our internal standards, as well as those expected by our customers.”
Many of the insurance businesses even posted improved results, with larger gains from underwriting from Geico and General Re reinsurance, and a business that provides workers compensation and commercial insurance.
A small underwriting loss hurt the insurance results. This took place in a business that insures against major catastrophes, and Berkshire Hathaway has attributed this to current fluctuations.
“Insurance profit looked a little weak,” said the managing director at Keefe, Bruyette & Woods Inc., Meyer Shields. “The rest of the business looked pretty good, which matches the slow but steady economic growth we keep hearing about.”
Berkshire Hathaway’s cash surged by $55.46 billion. This is up from $48.95 billion at the end of March.
This gives Buffett plenty of ammunition to make a large acquisition, which he likes to refer to as elephants. He said he would have no problem partnering on an acquisition, just like they did in 2013 when 3G Capital and Berkshire Hathaway teamed up to purchase H.J. Heinz Co.
At this time, Berkshire Hathaway owns over $119 billion worth of equities in companies including IBM, Wells Fargo, Coca-Cola and American Express.