Boosted by better performance in its insurance underwriting business and sizable profits from stock holdings now counted under a new accounting rule, Warren Buffett’s Berkshire Hathaway Saturday reported a sharp rise in second-quarter earnings.
Buffett’s big conglomerate, which owns businesses ranging from insurers to railroads to retailers like Dairy Queen, reported net earnings of $12 billion in the April-through-June quarter. That profit was nearly triple last year’s results and marked a strong rebound from a rare loss of $1.1 billion in the first three months of the year.
Berkshire’s earnings were once again influenced by an accounting change that requires it to include unrealized gains or losses from its nearly $180 billion stock portfolio.
Unlike the first quarter, when volatile markets caused Berkshire to reduce its overall earnings by $6.3 billion due to a decline in the value of its equity holdings, this quarter a better-performing stock market resulted in a $4.5 billion boost to its overall earnings.
Berkshire’s top holding is Apple, a company that this past week became the first U.S. publicly traded stock to surpass a market value of $1 trillion on the strength of its iPhone success. Other big stock holdings include Coca-Cola, Wells Fargo and American Express.
On an adjusted basis, which removes certain items like investment results, Berkshire posted earnings of $6.9 billion, up more than 67 percent from $4.1 billion in last year’s second quarter.
Revenues for the quarter were $62.2 billion, up nearly 9 percent from $57.3 billion in last year’s second quarter.
Buffett, 87, in the second-quarter earnings report, again stressed that investors should ignore the swings in its earnings due to volatile stock prices, and instead focus on the performance of the conglomerate’s businesses. Stock price fluctuations will “continue to cause significant volatility” in its quarterly results, he noted.
Despite the company’s board loosening rules last month that gives Buffett, the chairman and CEO of Berkshire, the freedom to buy back shares of Berkshire stock whenever he feels it makes financial sense, Berkshire did not announce a stock repurchase plan.
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Investors have been pressuring Buffett to start putting Berkshire’s massive cash hoard to work. At the end of June, Berkshire reported a cash stash of $111 billion, up from $109 billion at the end of March. Buying back company shares is one way for Buffett to return profits to shareholders.
Buffett, citing too high prices, has not made a major acquisition since the $32.1 billion purchase of aircraft parts maker Precision Castparts in January 2016.
Berkshire’s quarterly results were solid across all of its lines of businesses, helped in part by an improving economy and a healthy consumer.
Berkshire Hathaway’s stock so far in 2018 has posted smaller returns than the broad U.S. stock market. The company’s “A” shares closed at $304,671 Friday, leaving it up 2.4 percent on the year, versus a 6.2 percent gain for the Standard & Poor’s 500 stock index.
Its insurance underwriting unit posted a profit of $943 million, compared to a loss of $22 million a year ago. The performance was helped by the fact there has been no catastrophic events so far in 2018, unlike last year when the U.S. was hit with three major hurricanes. Auto insurer Geico, bolstered by a nearly 9% increase in premiums, provided a big lift, posting a pre-tax gain of $677 million.
Berkshire also benefited from the fastest pace of economic growth in the U.S. in four years in the just-ended second quarter.
Its building products business, which includes flooring from Shaw, paint from Benjamin Moore and insulation and roofing from Johns Manville, posted a revenue jump of nearly 7 percent to $3.3 billion. Similarly, Berkshire’s consumer-owned businesses, such as Brooks Sports, apparel maker Garan and recreational vehicle manufacturer Forest River, boosted sales by more than 8 percent to $3.3 billion.