ii view: Berkshire Hathaway cash bolstered by Apple sale

Second-quarter results to 30 June 

• Operating earnings up 15% to $11.6 billion (£9 billion)
• Net earnings attributable to shareholders of $30.3 billion ($23.6 billion), down from earnings of $35.9 billion
• Cash held of $276.9 billion (£216 billion) up from $188.9 billion in the previous quarter

ii round-up:

The Warren-Buffett headed conglomerate Berkshire Hathaway Inc Class B (NYSE:BRK.B) detailed increased quarterly operating profit as its cash mountain surged to yet another record high. 

Second-quarter operating profit climbed 15% from a year ago to $11.6 billion, fuelled by increased insurance underwriting gains. Group cash of $276.9 billion jumped from $189 billion in the first quarter, pushed by sales of investments including a near halving of its Apple Inc (NASDAQ:AAPL) shares to $84.2 billion. 

Shares for the S&P 500 company fell around 3% in post-results US trading and against a backdrop of significant global stock market falls having come into this latest news up 19% year-to-date. That’s ahead of a 12% gain for the S&P 500 index and comfortably better than a 5% increase for the Dow Jones industrial 30 index year-to-date. Apple shares are up 14% during 2024. 

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Overall, Berkshire profit and including gains or losses from its investments held, fell to a profit of $30.3 billion from a profit of $35.9 billion this time last year. Investment gains of $18.8 billion made this latest quarter reduced from the $25.9 billion achieved during Q2 2023. 

Berkshire sold more than $75 billion of investments during the second quarter, bringing total disposals made during the first half to late June to more than $90 billion. 

Berkshire used just $345 million of its growing cash mountain during this latest quarter to buy back its own shares. That’s down from $2.6 billion during the first quarter, and from $2.2 billion in the final quarter of 2023. 

Berkshire, which operates over 90 businesses, also detailed a 40% increase in insurance investment income year-over-year to $3.32 billion. Profit for its BNSF railway business remained flat at $1.23 billion. As did profits for other businesses, such as building materials, coming in at $3.4 billion. Energy-related profits fell 17% to $655 million.

Warren Buffett turns 94 later this month. Third-quarter results are likely to be announced in early November. 

ii view:

Berkshire Hathaway shares trade on the New York Stock Exchange under the two classes of A and B shares. The originally established ‘A’ class shares carry considerably greater voting power. Run by Buffett since 1965, Berkshire engages in a range of business activities including insurance and reinsurance, utilities and energy, and the manufacture of consumer and building-related products. 

For investors, the lack of a major acquisition for Berkshire to utilise its cash mountain is likely frustrating. Earnings for its insurance underwriting business can prove volatile given unforeseen natural events such as earthquakes. Costs generally for businesses remain elevated, while the eventual departure of Buffett from the business could potentially dampen investor enthusiasm.

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On the upside, its diversity of businesses regularly leaves gains for one division countering falls for another. The lack of any recent major acquisitions does appear to underline management’s patience in waiting for an appropriate value buying opportunity, while its ongoing share buyback programme continues to offer share price support.

In all, and given the legendary judgement and experience of Buffett and his team in utilising cash wisely, Berkshire shares look to remain worthy of their place in many already diversified long-term investor portfolios.    

Positives: 

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

Negatives:

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

The average rating of stock market analysts:

Buy