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Monday, August 9, 2021
Berkshire Hathaway’s own shares were Berkshire’s big buy in the second quarter
Berkshire Hathaway (BRK-A, BRK-B) released its quarterly results on Saturday morning.
The conglomerate’s total revenue reached $ 69.1 billion in the second quarter, while earnings per share were $ 18,488 per Class A share.
But as has been the case for several years now, one of the biggest headlines to emerge from Berkshire’s results is the growing cash flow upon which Warren Buffett’s company sits. At the end of the quarter, Berkshire’s insurance and other businesses held $ 140.7 billion in cash, cash equivalents and treasury bills. This is up from $ 138.1 billion at the end of the first quarter.
In recent years, Berkshire’s main use of cash has been to buy equity securities and, in particular, to buy back Berkshire Hathaway shares.
In the second quarter, the company spent $ 6 billion to buy back its own shares after spending $ 6.6 billion on buybacks in the first quarter. As Bloomberg’s Katherine Chiglinsky notes, this most recent buyout is the 4th largest since Berkshire embarked on its stock buyback in 2018, after taking nearly six years off practice.
In his latest annual letter to Berkshire Hathaway shareholders, Buffett spoke at length about share buybacks and the benefits that this practice can bring to shareholders, using Berkshire’s stake in Apple (AAPL) and the company’s own buyback plan. Apple as an illustration of this dynamic.
“Calculating buybacks is done slowly, but can be powerful over time,” Buffett wrote. “The process provides an easy way for investors to own an ever-growing share of outstanding companies. And as the sultry Mae West assured us, ‘Too much good can be… wonderful.’”
Against this backdrop, it’s no surprise, then, that Buffett continues to view share buybacks as an attractive – if not the best – use of Berkshire’s cash. But given the firm’s substantial (and growing) liquidity out of the box, there has been little unnecessary speculation about the origin of Berkshire’s next major acquisition.
This month marks the sixth anniversary of Berkshire’s latest substantial acquisition – the $ 37 billion purchase by the company of aircraft parts maker Precision Castparts. But the challenges for Berkshire in the aftermath of the deal may explain why buybacks remain Buffett’s preferred method of deploying liquidity. Last year, Berkshire took an $ 11 billion depreciation on Precision Castparts, with Buffett writing, “I paid too much for the company.”
He added: “I think I was right to conclude that [Precision Castparts] would earn, over time, good returns on the net tangible assets deployed in its operations. I was wrong, however, in judging the medium amount of future earnings and, therefore, incorrect in my calculation of the appropriate price to pay for the business. CCP is far from my first such mistake. But it’s a big one. “
A reminder that the challenge for investors of any experience, size or style is less about figuring out what works and more about avoiding what doesn’t. A lesson which, for several years, has pushed Warren Buffett to buy local.
By Myles abroad, journalist and presenter for Yahoo Finance Live. Follow him on @MylesUdland
What to watch today
Economy
Earnings
Pre-marketing
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6:05 am ET: Network of dishes (PLATE) Expected to Report Adjusted Earnings of 90 cents per Share on Revenue of $ 4.43 Billion
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7:30 am ET: Tyson Foods (TSN) Expected to Report Adjusted Earnings of $ 1.61 per Share on Revenue of $ 11.47 Billion
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9:00 am ET: Workaholic group (WKHS) Expected to Report Adjusted Losses of 31 cents per Share on Revenue of $ 5.43 Million
Post market
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4:05 p.m. ET: The True True (REAL) Expected to Report Adjusted Losses of 43 cents per Share on Revenue of $ 108.61 Million
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4:05 p.m. ET: Chegg (CHGG) expected to report adjusted earnings of 37 cents per share on revenue of $ 190.15 million
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4:05 p.m. ET: SmileDirectClub (SDC) Expected to Report Adjusted Losses of 10 cents per Share on Revenue of $ 198.5 Million
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4:10 p.m. ET: Planet Fitness (PLNT) Expected to Report Adjusted Earnings of 23 cents per Share on Revenue of $ 127.07 Million
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4:15 p.m. ET: AMC Entertainment (AMC) Expected to Report Adjusted Losses of 94 cents per Share on Revenue of $ 382.25 Million
Also: Inflation data, Disney earnings: what to expect this week
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