Warren Buffett's Berkshire Hathaway recovering from coronavirus woes

The company Buffett has run since 1965 also signalled the billionaire's confidence in its future by repurchasing $6 billion 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 $6.69 billion, or about $4,424 per Class A share, from $5.51 billion, 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 $28.1 billion, or $18,488 per Class A share, from $26.3 billion, or $16,314 per share. Revenue jumped 22% to $69.1 billion. 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 $37 billion 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 Aug. 30. 

NET SELLER 

Valuations may have also played a role in Berkshire's selling $1.1 billion more stocks than it bought in the quarter. The net selling is one reason Berkshire ended June with $144.1 billion of cash and equivalents, despite the buybacks. 

Net income was bolstered by unrealized gains in Apple, Bank of America and American Express Corp, where Berkshire's investments ended June at $124.3 billion, $42.6 billion and $25.1 billion, respectively. Accounting rules require Berkshire to report the unrealized gains with net results, causing huge swings that Buffett considers meaningless. 

BNSF's profit surged 34% to $1.52 billion, 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 $740 million. Some other results were less rosy. 

Geico's pre-tax underwriting profit fell 70% as people drove more and crashed more often, with claims frequencies for collisions rising more than 21%. A sore spot remained Precision Castparts, the aircraft and industrial parts maker that in 2020 cut 13,400 jobs and was written down by $9.8 billion as airlines slashed plane orders. 

Precision's revenue fell another 9%, and Berkshire said a big rebound is not likely soon because customers have enough parts.