Warren Buffett's Berkshire’s profits ride high on energy, utilities & railroad businesses 

Warren Buffett’s Berkshire Hathway reported a 7% increase in net earnings riding on the back of improved results for its utilities, energy, and railroad companies.

Berkshire reported a net income of $28.1 billion, or $18,488 per Class A share equivalent in the second quarter, compared with a profit of $26.3 billion, or $16,314 per Class A share equivalent, in the year-earlier period.

The increase was supported by gains through $192 billion worth of investments by Berkshire in Apple, Bank of America, and American Express. 

Operating profits, excluding some investment results, rose 21% $6.7 billion or about $4,424 per Class A share, from $5.51 billion, or about $3,463 per share, in the year prior.

On Saturday, the company said that strong recoveries in the company’s BNSF railroad, namesake auto dealership, and housing units had fueled rebounds in profits and revenue, topping pre-pandemic levels in some cases. The Omaha, Nebraska-based company's manufacturing, service, and retailing businesses suffered last year as economic activity plunged, job losses soared and shoppers stayed home.

A recent change in the accounting rule implies that Berkshire’s earnings reflect the larger performance of the stock market while operating earnings more accurately reflect the firm’s large business operations.

Berkshire holds large investments in the stock market. The growth of special-purpose acquisition companies (SPACs), which take private companies public, makes buying whole companies appear too costly. Despite that, the billionaire repurchased $6 billion of Berkshire’s shares in the second quarter, even as its stock price regularly set new highs. During the company’s meeting in May, Buffett dismissed SPACs stating, “Frankly, we’re not competitive with that. It won’t go on forever.”

He said that SPACs and private-equity funds have driven up the valuations of private and public companies to levels higher than required. He said that some of these groups invest other people’s money and have a time limit to deploy cash, which drives up prices.

Berkshire made a net sale of $1.1 billion worth of stocks resulting in $144.1 billion of cash and equivalents in the second quarter, down from about $145.4 billion in cash at the end of the first quarter, despite the buybacks.

Berkshire's share price is up 23.7% in 2021, topping the S&P 500's 18.1% gain, after trailing the index significantly in 2019 and 2020.

Analysts point out that the buybacks could be the preferred source of cash deployment. 

(With inputs from Wall Street Journal)

Picture Credits: AppleInsider