Warren Buffett’s Berkshire Hathaway reported a surge in profits in the second quarter as the value of its stock portfolio rebounded, offsetting a near $10bn writedown on its largest manufacturing business and a slide in operating earnings.
The industrial conglomerate, which owns insurer Geico, the BNSF rail company and ice cream purveyor Dairy Queen, said net income rose 87 per cent from the year before to $26.3bn for the three months to the end of June.
The gain was propelled by a broad market rally that helped lift the shares of iPhone maker Apple, its largest stock investment, 43 per cent in the second quarter.
But the earnings of the dozens of companies Berkshire owns outright fell 10 per cent from the previous year to $5.5bn, which included large declines at Precision Castparts, the aerospace parts supplier that Berkshire acquired in 2016.
Berkshire said it would take a $9.8bn writedown on the unit, reflecting the deep contraction in air travel since the onset of the coronavirus pandemic. Precision Castparts embarked on what Berkshire characterised as an “aggressive restructuring” to cut costs in the first half of the year as demand for aircraft has fallen. The group has reduced its workforce by 10,000 employees, or roughly 30 per cent of its headcount at the end of last year.
“The Covid-19 pandemic events will continue to evolve and the effects on our businesses may differ from what we currently estimate,” Berkshire disclosed in a regulatory filing on Saturday. “If the effects prove to be worse than is reflected in our current estimates, additional goodwill or indefinite-lived intangible asset impairment charges could be required.”
Despite the weakness across many of Berkshire’s businesses, the company’s cash pile climbed to a record $146.6bn in the second quarter, up from $137.3bn at the end of March. The company said it had repurchased $5.1bn of its own stock in the quarter.
Investors and analysts have criticised the rising cash levels at Berkshire this year, particularly as the company’s stock has lagged the benchmark S&P 500. In recent weeks, Mr Buffett has shown some appetite for the dealmaking that helped make Berkshire a household name.
Berkshire ploughed more than $2bn into Bank of America in late July, buying shares of the US lender every day in the final two weeks of the month. In July it also agreed to buy the natural gas transmission business of Dominion Energy for $4bn and assume $5.7bn of the group’s debt.
“They still have a pile of cash on their balance sheet,” said Cathy Seifert, an analyst who covers the company at CFRA Research. “The Dominion Energy gas transmissions and storage purchase, that was a pretty sizeable deal and that has quelled some of the rabid speculation [of whether] they were going to do a deal.”