Berkshire Earnings Skyrocket on Stock Market, Insurance Gains -- WSJ
August 10 2020 - 3:02AM
Dow Jones News
By Geoffrey Rogow
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (August 10, 2020).
Warren Buffett's Berkshire Hathaway Inc. said its second-quarter
earnings surged 86%, as a rebound in the stock market offset a
profit decline in the company's operations and a large write-down
for Precision Castparts Corp.
Berkshire reported second-quarter net earnings of $26.3 billion,
or $16,314 per Class A share equivalent, from $14.1 billion, or
$8,608 per Class A share equivalent, in the year-earlier
period.
Operating earnings, which exclude some investment results, fell
to $5.5 billion from $6.1 billion in the year prior. Profits
increased within the company's vast insurance operations,
especially underwriting, while railroad, utilities and energy, and
other businesses declined.
Berkshire took a $9.8 billion write-down for Precision Castparts
in the quarter. Berkshire bought Precision Castparts for about $32
billion in 2016. The company, which supplies parts for aircraft
makers and makes equipment for power stations and the oil-and-gas
industry, has been hurt by the coronavirus pandemic.
Berkshire runs a large insurance operation as well as railroad
holdings, utilities, industrial manufacturers, retailers and even
auto dealerships. It also holds large investments, especially in
the stock market.
An accounting-rule change in recent years has meant that
Berkshire's earnings often reflect the larger performance of the
stock market. Given the change, the company's operating earnings
are often a more accurate reflection of the performance of its vast
business operations.
The earnings report comes amid a tumultuous year in the economy
and markets due to the impact of coronavirus. In the first quarter,
stocks traded in a narrow range before selling off in March. Those
market declines dented Berkshire's profit in the first quarter.
Stocks have rebounded significantly since then. The S&P 500
finished the second quarter up 20%, its biggest percentage gain
since the last three months of 1998.
Despite a reputation for often either purchasing companies
outright or making direct loans during turbulent times in markets,
Mr. Buffett's firm was largely silent for much of the pandemic. The
firm's biggest deal came in early July when Berkshire announced an
agreement to buy Dominion Energy's midstream energy business for
$9.7 billion including debt. The purchase is typical for Mr.
Buffett in that Dominion's stock was in decline, and he knows the
sector well.
Berkshire has been an active seller in some significant stock
holdings during the pandemic. Berkshire sold out of all of its
airline holdings and more recently, disclosed that it had slashed
the bulk of its holdings in Goldman Sachs Group Inc. The firm has
been buying shares of Bank of America Corp., according to
regulatory filings.
Berkshire increased its buyback plan in the quarter, adding
about $5 billion of its stock. It purchased $1.74 billion in
Berkshire stock a quarter ago. Berkshire went years without buying
back its stock. Mr. Buffett has long argued that he could better
increase shareholder value through investments than through
buybacks or dividends.
But the firm has taken on buybacks regularly since 2018.
Class A shares closed Friday at $314,333.88, down 7.4% for the
year. By comparison, the S&P 500 is up 3.7% for the year.
The 89-year-old Mr. Buffett, whose shrewd investments have
earned him the nickname "the Oracle of Omaha," has plenty of cash
on hand for future acquisitions as a way to drive profit. Berkshire
held $146.6 billion in cash at the end of the second quarter, up
from about $137.3 billion in cash at the end of the first
quarter.
Write to Geoffrey Rogow at geoffrey.rogow@wsj.com
(END) Dow Jones Newswires
August 10, 2020 02:47 ET (06:47 GMT)
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