By Jonathan Stempel
(Reuters) -Warren Buffett's Berkshire Hathaway (NYSE:BRKa) Inc on Saturday said many of its businesses are enjoying strong recoveries from the early depths of the coronavirus pandemic, fueling rebounds in profits and revenue.
The company Buffett has run since 1965 also signaled the billionaire's confidence in its future by repurchasing $6 billion of its own shares in the second quarter, even as its stock price regularly set new highs.
Omaha, Nebraska-based Berkshire's manufacturing, service and retailing businesses suffered last year as economic activity plunged, job losses soared and shoppers stayed home.
But now, Berkshire said its BNSF railroad, namesake auto dealership and housing units are among many businesses seeing "significant" recoveries despite supply chain disruptions and higher costs, with earnings and revenue in some instances topping pre-pandemic levels.
Another sign of improvement was Berkshire's decision not to repeat a caution in its previous quarterly results that other operating units still faced adverse effects from the pandemic.
Second-quarter operating profit rose 21% to $6.69 billion, or about $4,424 per Class A share, from $5.51 billion, or about $3,463 per share, a year earlier.
Net income rose 7% to $28.1 billion, or $18,488 per Class A share, bolstered by unrealized gains in Berkshire's $192 billion of investments in Apple Inc (NASDAQ:AAPL), Bank of America Corp (NYSE:BAC) and American Express (NYSE:AXP) Corp.
Revenue jumped 22% to $69.1 billion. Berkshire also owns such businesses as the Geico auto insurer and See's Candies.
Results were "pretty strong, reflecting broad economic strength," said Jim Shanahan, an Edward Jones analyst. He rates Berkshire "buy" and raised his earnings forecast through 2022.
Many U.S. companies have improved results as the economy rebounds.
Goldman Sachs (NYSE:GS) this month raised its 2021 earnings forecast for Standard & Poor's 500 companies, implying 45% annual growth.
The second quarter was also notable for Buffett's revealing that if he were to step down, Berkshire's next chief executive would be Greg Abel, a vice chairman overseeing Berkshire's non-insurance businesses. Buffett turns 91 on Aug. 30.
NET SELLER
Berkshire's buybacks, including at least $1.7 billion in July when its share count declined further, boosted total share repurchases to about $39 billion since the end of 2019.
Buffett has aggressively repurchased Berkshire shares as high stock market valuations and the growth of special purpose acquisition companies, which take private companies public, make buying whole companies appear too costly.
"It's a killer," Buffett said at Berkshire's annual meeting on May 1, referring to SPACs.
Valuations may have also played a role in Berkshire's selling $1.1 billion more stocks than it bought in the quarter.
The net selling is one reason Berkshire ended June with $144.1 billion of cash and equivalents, despite the buybacks.
Berkshire's share price is up 23.7% in 2021, topping the S&P 500's 18.1% gain, after trailing the index significantly in 2019 and 2020.
"It's very clear they're having difficulty deploying capital in public markets," Shanahan said. "Given the valuation of the stock, we should expect Berkshire's buybacks to be the preferred source of capital deployment."
BNSF's profit surged 34% to $1.52 billion, as retailers replenished inventories and demand swelled for building products, grain and coal.
First-half vehicle sales grew 30% at the Berkshire Hathaway Automotive dealerships.
Homebuying also rebounded, boosting quarterly reported profit 43% at Clayton Homes mobile homes and 129% at Berkshire's namesake real estate brokerage.
The brokerage is part of Berkshire Hathaway Energy, where wind power tax credits helped increase profit 17%.
Some businesses fared less well.
Geico's pretax underwriting profit fell 70% as people drove, and crashed, more often. Rivals including Allstate Corp (NYSE:ALL) and Progressive Corp (NYSE:PGR) have also reported more accidents.
Berkshire also said revenue fell 9% at Precision Castparts, the aircraft and industrial parts maker it wrote down by $9.8 billion in 2020 as airlines slashed plane orders. It said a big rebound is not likely soon because customers have enough parts.