Warren Buffett’s Berkshire Hathaway Recovers from Coronavirus Slowdown

Aug. 7 (Reuters) – Warren Buffett’s Berkshire Hathaway Inc (BRKa.N) said on Saturday that many of its companies were enjoying a strong recovery from the initial lows of the coronavirus pandemic, fueling rebounds in profits and revenues .

The Buffett company, run since 1965, also marked the billionaire’s confidence in his future by buying back $ 6 billion of his own shares in the second quarter, even as its stock price regularly reached new highs.

Berkshire’s manufacturing, service and retail businesses, based in Omaha, Nebraska, suffered last year as economic activity plunged, job losses soared and buyers stayed at home.

But now Berkshire has said its BNSF railroad, eponymous car dealership and housing units were among many companies recording “significant” recoveries despite supply chain disruptions and higher costs, with profits and revenues in some cases exceeding pre-pandemic levels.

Another sign of improvement was Berkshire’s decision not to repeat a warning in its previous quarterly results that other business units were still grappling with the adverse effects of the pandemic.

Second-quarter operating income 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 rose 7% to $ 28.1 billion, or $ 18,488 per Class A share, supported by unrealized gains on Berkshire’s $ 192 billion of investments in Apple Inc (AAPL.O) , Bank of America Corp (BAC.N) and American Express Corp (AXP .N).

Revenue jumped 22% to $ 69.1 billion. Berkshire also owns businesses such as auto insurer Geico and See’s Candies.

The results were “quite strong, reflecting broad economic strength,” said Jim Shanahan, Edward Jones analyst. He rates Berkshire to “buy” and has raised his profit forecast until 2022.

Many American companies have improved their results as the economy rebounds.

Goldman Sachs this month raised its 2021 profit forecast for Standard & Poor’s 500 (.SPX) companies, implying annual growth of 45%.

The second quarter was also marked by Buffett’s revelation that if he were to step down, Berkshire’s next chief executive would be Greg Abel, a vice president overseeing Berkshire’s non-insurance business. Buffett will be 91 on August 30.

NET SELLER

Berkshire’s buybacks, including at least $ 1.7 billion in July when its number of shares declined further, have brought total share buybacks to around $ 39 billion since the end of 2019.

Buffett has aggressively bought back Berkshire shares, as high stock valuations and the growth of specialist acquisition companies, which make private companies public, make buying entire companies too expensive.

“It’s a killer,” Buffett said at the Berkshire annual meeting on May 1, referring to PSPCs. Read more

Valuations may also have played a role in Berkshire selling 1.1 billion more shares than it bought in the quarter.

The net sale is one of the reasons Berkshire ended June with $ 144.1 billion in cash and cash equivalents, despite buybacks.

The Berkshire share price is up 23.7% in 2021, beating the S&P 500’s 18.1% gain, after falling significantly below the index in 2019 and 2020.

“It is very clear that they are having difficulty deploying capital in public markets,” Shanahan said. “Given the stock’s valuation, we should expect the Berkshire buybacks to be the preferred source of capital deployment.”

BNSF’s profit jumped 34% to $ 1.52 billion as retailers restocked and demand for construction products, grains and coal increased.

First half vehicle sales increased 30% at Berkshire Hathaway Automotive dealerships.

Home buying also rebounded, increasing reported quarterly profit by 43% for Clayton Homes mobile homes and 129% for the namesake Berkshire real estate brokerage.

The brokerage is part of Berkshire Hathaway Energy, where wind power tax credits helped boost profits by 17%.

Some companies are doing less well.

Geico’s pre-tax underwriting profit fell 70% as people drove, and crashed more often. Competitors like Allstate Corp (ALL.N) and Progressive Corp (PGR.N) have also reported more accidents.

Berkshire also said revenue at Precision Castparts, the maker of aircraft and industrial parts, fell $ 9.8 billion in 2020 as airlines cut orders for aircraft. He said a big rebound is not likely soon because customers have enough coins.

Report by Jonathan Stempel in New York; Editing by Kirsten Donovan, David Holmes, Sonya Hepinstall and Diane Craft

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