Profit up 87% at Buffett’s Berkshire Hathaway, but virus slows businesses
Value of Berkshire Hathaway’s investment portfolio increased with the stock market
Omaha: Warren Buffett’s company reported an 87% jump in its second-quarter profit as the paper value of its investment portfolio increased with the stock market, but it took a roughly $10 billion write down on the value of its aircraft parts manufacturing business because of the economic impact of the coronavirus pandemic.
Berkshire Hathaway Inc. said Saturday that it earned $26.3 billion, or $16,314 per Class A share, during the second quarter. That’s up from $14.1 billion, or $8,608 per share, a year ago.
Berkshire said it cut the value of its Precision Castparts unit because of how much the pandemic has hurt air travel and businesses that support that airline industry. Precision Castparts cut about 10,000 jobs, or about 30% of its workforce, during the first half of the year as it responded to the reduced demand.
CFRA analyst Cathy Seifert said the Precision Castparts write-down _ combined with Berkshire’s sale of all its airline stocks earlier this year _ suggests that Buffett expects the pandemic to have a lasting negative impact on the airline business.
Buffett has long said Berkshire’s operating earnings offer a better view of quarterly performance because they exclude investments and derivatives, which can vary widely. They also exclude the Precision Castparts write down. By that measure, Berkshire’s operating earnings declined 10% to $5.5 billion, or $3,420.48 per Class A share, as most of its businesses were hurt by restrictions related to the coronavirus pandemic. That’s down from $6.1 billion, or $3,754.83 per share.
The four analysts surveyed by FactSet expected operating earnings per Class A share of $3,182.06.
Virus impact
The pandemic’s impact on Berkshire’s businesses was significant, but Edward Jones analyst Jim Shanahan said it may not have been as bad as expected, partly because Geico insurance and BNSF railroad performed well during the quarter.
Like all auto insurers, Geico benefited from lower claims because there were fewer accidents as people drove less with many people working from home. It reported a $2.1 billion underwriting profit in the quarter, up from $393 million a year ago. Also, a $2.5 billion in premium reductions Geico is offering customers because of the lower claims will be spread over the coming year as people renew policies instead of taking effect all in the second quarter when most other insurers sent refunds.
Berkshire Hathaway Inc. owns more than 90 companies, including the railroad and insurance, utility, furniture and jewelry businesses. The company also has major investments in such companies as Apple, American Express, Coca-Cola and Bank of America.