On the 7th (local time), Warren Buffett’s Berkshire Hathaway reported strong quarterly results.
The subsidiaries of Berkshire Hathaway cover a wide range of industries, and a large proportion of their investments are in equity. The earnings of Berkshire are therefore a good indicator of the general economic climate.
CNBC, the Wall Street Journal (WSJ) and the Financial Times (FT) reported that Berkshire’s net income increased by 7% and operating income by 21% in its second-quarter results released the same day.
The operating income increased from $5.51 billion in the same period last year to $6.69 billion this year.
As a result, Berkshire’s net income from its equity investments, such as Apple, Bank of America (BoA), American Express, and Coca-Cola, rose 6.8 percent to $28.1 billion in the second quarter of this year from $26.3 billion a year ago.
Railroad, utility and energy companies drove the increase, including Berkshire-led Northern Burlington Santa Fe (NBSF).
BNSF’s net income rose 34% despite logistical challenges.
Compared to the same period last year, Berkshire’s operating profit declined 10% in the second quarter and 30% in the third quarter. This was due to the impact of a new Coronavirus infection (COVID-19), which led to stagnant profits at its major subsidiaries.
However, this year’s earnings improved significantly as the U.S. economy showed a strong recovery amid the expansion of vaccinations, significantly expanded logistics, and increased energy demands.
Although supply chain disruptions and inflation persist regardless of subsidiary size, Berkshire said some subsidiaries had performed better than before the pandemic.
The outlook for Berkshire is bright.
The company expressed optimism about the future as it reported a “meaningful” recovery.
Berkshire’s cash position, which always attracts market attention, was estimated at $144 billion, $1.4 billion lower than a year ago.
Furthermore, a net sale of its portfolio was recorded in the second quarter. The company sold more shares than it bought.
Edward Jones analyst James Shanahan estimates that Berkshire has sold $13.6 billion worth of its stock portfolio since the Covid-19 pandemic began.
The increase in the price of shares has, however, increased the valuation of the holdings.
By the end of June, the value of Berkshire stocks such as Apple and BoA had risen to $308 billion.
Treasury stock purchases have also been active. Berkshire purchased its own shares for $6 billion, which was less than the $6.6 billion it bought in the first quarter.
Last year, Berkshire bought a record $24.7 billion of its own stock.
Four stocks (Apple, BoA, American Express and Coca-Cola) accounted for about 70% of the total investment portfolio.