ii view: Berkshire Hathaway profit climbs by a fifth

The conglomerate bought back $6 billion of its own stock in this latest quarter. We assess its prospects. 

Second-quarter results to 30 June 2021

• Operating earnings up 21% to $6.69 billion (£4.82 billion)
• Net earnings attributable to shareholders up 6.8% to $28.1 billion (£20.2 billion)
• Cash of $144.1 billion (£103.7 billion)
• Shares buy-back of $6 billion, down from $6.6 billion in Q1 2021

ii round-up:

Warren Buffett run conglomerate Berkshire Hathaway (NYSE:BRK.B) reported a 21% increase in second-quarter operating earnings as economic activity continued to recover from pandemic restrictions undertaken in the second quarter of 2020. 

Operating earnings, which exclude gains or losses from Berkshire’s investment portfolio, rose to $6.69 billion (£4.82 billion) in this latest quarter to the end of June, up from $5.51 billion (£3.96 billion) this time last year. The measure, Mr Buffett’s preferred assessment of performance, was helped by recoveries in earnings from various businesses from railroads to energy operations. 

The Omaha Nebraska headquartered company, which operates over 90 businesses, purchased around $6 billion of its own stock during the quarter. That’s down from the $6.6 billion purchased in the prior first quarter. Berkshire purchased a record $24.7 billion (£17.8 billion) of its own shares over the whole of 2020, including $9 billion in the final quarter of 2020. 

Berkshire shares are up by around 23% year-to-date compared to a gain of 18% for the S&P 500 index. Shares of retailing mammoth Amazon (NASDAQ:AMZN) are up around 3% year-to date. Shares of electric vehicle maker Tesla (NASDAQ:TSLA) are down by around 1% during 2021.

Berkshire quarterly profits including investment gains came in at $28.1 billion, up from $26.3 billion in the second quarter of 2020. The company which Mr Buffet has run since 1965 sold $1.1 billion more stocks than it bought in the quarter. 

Berkshire’s cash mountain stood at $144.1 billion at the end of the quarter, little changed on the $145.4 billion held at the end of the prior first quarter, although up from $138 billion held at the end of 2020. 

The company also recently announced that Greg Abel, current vice chairman of Berkshire's non-insurance businesses, would become chief executive should Mr Buffett step down. Warren Buffett turns 91 at the end of August. 

ii view:

Berkshire Hathaway is a holding company with a wide array of subsidiaries engaged in diverse activities. Led by legendary investor and businessman Warren Buffett, Berkshire engages in a range of business activities from insurance and reinsurance to utilities, freight rail transportation and manufacturing. It operates over 90 businesses. 

For investors, a near 14% underperformance compared to the S&P 500 index over 2020, added to an 18% underperformance over the course of 2019, suggesting thinning investor patience with Berkshire’s inability to find a home to invest its cash mountain.  

But Mr Buffett has been seeing value in his own Berkshire Hathaway shares. Share buybacks remain ongoing with their value increasing from 2019 to 2020, helping to put some of its cash mountain to work. Second quarter investment holdings included Apple (NASDAQ:AAPL), Bank of America (NYSE:BAC), American Express (NYSE:AXP) and Coca-Cola (NYSE:KO). New investment opportunities are still being found, if not as of yet on a scale to justify a major acquisition. In all, and with distorting Central Bank action still arguably very much in play on global asset prices, the judgement and experience offered by Mr Buffett’s Berkshire company remains highly reassuring.   

Positives: 

• Diverse portfolio of industries and businesses
• Company Chairman Warren Buffett is regarded by many as a legendary investor and businessman 

Negatives:

• Subject to macro-economic and geopolitical uncertainties
• Management succession risk - Mr Buffett is in his 90’s

The average rating of stock market analysts:

'Strong hold'