Berkshire Hathaway Posts Strong Operating Results as Buyback, Stock Buying Slows

© Reuters. Berkshire Hathaway (BRK-A) (BRK-B) Posts Strong Operating Results Even As Buyback, Equity Buying Slows

By Daniel Shvartsman

Investing.com - Berkshire Hathaway (NYSE:BRKa) (NYSE:BRKb)) reported increased operating earnings in Q2, beating on both the operating earnings and revenue line, as the core business outperformed amidst a volatile stock market.

The Warren Buffett-led conglomerate posted operating earnings of $9.3B, or $6,315 per A share, vs. estimates of $4,756 per A share. The net earnings per share was negative at -$29,756/share, reflecting the unrealized losses in Berkshire’s equities portfolio especially, as four of its biggest five positions – Apple (NASDAQ:AAPL), Chevron (NYSE:CVX), American Express (NYSE:AXP), and Bank of America (NYSE:BAC) – all dropped in value despite no signs Berkshire sold any shares. Coca Cola rose slightly in Q2 and pulled back into the top 5 of Berkshire Hathaway equity holdings.

While Berkshire Hathaway’s 13F form for Q2, which will show their updated equity holdings, has yet to be released, the company’s equity buying slowed considerably in Q2, as Buffett and co only added $3.8B in net equity purchases, vs. the $41.4B they added in Q1. Berkshire’s net buying of treasury bills also slowed, as they added only $7.6B in treasuries net of sales and redemptions, vs. $14.4B in Q1.

The share buyback front also slowed for the quarter, as Berkshire Hathaway only repurchased $1B worth of shares, after spending $3.2B on buybacks in Q1. Given shares closed the quarter near their year to date lows, the buyback may be more on watch for Q3, amid questions of whether Berkshire and Buffett’s confidence in the economy waned as inflation persisted and drumbeats of a pending recession grew in volume in recent months.

Berkshire Hathaway’s operating business showed little sign of slowing down in the quarter. Berskhire’s insurance underwriting business returned to earnings growth in Q2, up 54% even as the Geico business declined due to, “increases in claims frequencies and severities and lower reductions of ultimate claim estimates for prior years’ losses.” The auto insurer posted a loss of $487M in pre-tax earnings, an increase on losses in Q1.

Berkshire’s railroad businesses’ continued to outpace inflation, with earnings growing 9.8% on the quarter to offset increased fuel costs. Berkshire’s utilities business saw revenue growth of 7% mostly canceled out by increased costs, as net earnings only grew 3.5%.

The manufacturing, service, and retailing businesses grew 8.2%, a slowdown from Q1 growth but still significant. The filing stated that, “While customer demand for products and services was relatively good in the first six months of 2022, we continue to experience the negative effects of higher materials, freight, labor and other input costs.”

The building products segment, most tied to real estate, posted 20% revenue growth as “residential home construction in the U.S.” continued to be relatively strong, though the filing noted the risks from rising mortgage rates slowing down homebuilding activity. Berkshire’s real estate brokerage business saw a drop of $51M in earnings, in part due to a decrease in activity in mortgage services.

Berkshire Hathaway closed Friday trading at $439,528.92 on the A shares and $292.07 on the B shares, both down about 2.4% for the year, outpacing the leading indices year to date amidst the rise in energy stocks and the shift to “value stocks” outperformance in 2022.