Buffett’s Berkshire is recovering from coronavirus woes

Warren Buffett

Warren Buffett’s Berkshire Hathaway Inc on Saturday said many of its businesses are enjoying strong recoveries from the early depths of the coronavirus pandemic, fuelling rebounds in profits and revenue. The company Buffett has run since 1965 also signalled the billionaire’s confidence in its future by repurchasing $6bn 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 businesses such as the BNSF railroad, NetJets luxury planes and its namesake auto dealerships are posting “significant” recoveries despite supply chain disruptions and higher costs, with earnings and revenue sometimes topping pre-pandemic levels. Another sign of improvement was Berkshire’s decision not to repeat a caution from its previous quarterly report that other operating units still faced adverse effects from the pandemic. Second-quarter operating profit rose 21% to $6.69bn, or about $4,424 per Class A share, from $5.51bn, or about $3,463 per share, a year earlier. Net income, including gains from common stocks such as Apple Inc and Bank of America Corp, rose 7% to $28.1bn, or $18,488 per Class A share, from $26.3bn, or $16,314 per share. Revenue jumped 22% to $69.1bn. Berkshire also owns such businesses as the Geico auto insurer and See’s Candies. The buybacks boosted Berkshire’s total share repurchases to more than $37bn 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. Berkshire’s share count declined further in July, suggesting it has repurchased more stock. The share price has risen 23.7% in 2021, outperforming the Standard & Poor’s 500’s 18.1% gain, but significantly trailed the index in 2019 and 2020. The 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 August 30. Valuations may have also played a role in Berkshire’s selling $1.1bn more stocks than it bought in the quarter. The net selling is one reason Berkshire ended June with $144.1bn of cash and equivalents, despite the buybacks. Net income was bolstered by unrealised gains in Apple, Bank of America and American Express Corp, where Berkshire’s investments ended June at $124.3bn, $42.6bn and $25.1bn, respectively. Accounting rules require Berkshire to report the unrealised gains with net results, causing huge swings that Buffett considers meaningless. BNSF’s profit surged 34% to $1.52bn, as retailers replenished inventories to satisfy consumer demand, and demand grew for building products, grain and coal. More people also bought homes, boosting 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 tax credits for wind power were among factors that boosted profit 17% to $740mn. Some other results were less rosy. Geico’s pretax underwriting profit fell 70% as people drove more and crashed more often, with claims frequencies for collisions rising more than 21%.