No Buyback But Buffett’s Berkshire Profit Surges

By Glenn Dyer | More Articles by Glenn Dyer

No sign of any buyback and no announcement of one by Warren Buffett’s Berkshire Hathaway in a June quarter financial report that revealed a 67% surge in profit thanks in part to new accounting rules and better returns from its insurance, rail, car dealerships and industrial operations.

In fact, putting aside the one off gains (which with losses, will now be a regular part of Berkshire’s results) it is clear Buffett’s conglomerate has benefited significantly from the current bout of strong economic growth and Trump’s tax cuts.

The company said net earnings attributable to its shareholders nearly tripled from a year earlier to $US12.01 billion for the three months to the end of June from $US4.26 billion.

That includes around $US5 billion in paper gains from its investment portfolio, which benefited from the rise in the share price of Berkshire’s largest equity investment, Apple.

Buffett wrote in his annual letter to shareholders in February that the rule change would “severely distort” its net earnings, and cautioned investors to focus on the “truly important numbers that describe our operating performance.” That sentiments were repeated in the latest statement to make sure investors understood the fleeting nature of these gains.

Operating profit rose to $US6.89 billion, from $US4.12 billion a year earlier. The results also reflected a decline in Berkshire’s effective income tax rate to 20% from 28.9% after the cut in corporate taxes.

Berkshire also ended June with a ‘float’ $US116 billion of cash and equivalents, some of which Buffett could be used to repurchase stock under a change of policy last month giving him more freedom to buy back shares considered to be undervalued.

The company said nothing about that change of policy so far as future plans for a buyback are concerned.

Berkshire spent $US6.08 billion on equities in the June quarter.

Apple’s market value ended at just over $US1 trillion on Friday and Apple shares now account for $US47.2 billion of its $US179.7 billion stock portfolio, a filing with US regulators at the weekend showed. Analysts say the company looks like it picked up another 15 million Apple shares in the quarter.

But what was impressive about the result was the impact of the stronger economy – and a lack of bad weather and other claims in the quarter compared with a year ago – although the US is now heading into the toughest two quarters from weather related catastrophes – as we are seeing with more bad fires in California.

Insurance underwriting profit totalled $US943 million, compared with a year earlier $US22 million loss.

Geico’s pre-tax underwriting profit rose to $US673 million from $US119 million, after it boosted rates in response to rising accident and storm losses a year ago.

Profits at the BNSF railroad group surged 37% to $US1.31 billion, as economic growth led to more shipments of consumer goods, and demand for fertiliser, grain, petroleum products, plastics, sand and steel.

Profit from manufacturing, services and retailing units rose 29%, reflecting demand at Precision Castparts, Berkshire Hathaway Automotive and the German motorcycle accessories unit Detlev Louis Motorrad.

Berkshire A class shares are up 2% this year and closed on Friday at $US304,671. The rise is due to the 7% jump in the past three weeks off the back of the change of approach to buybacks.

The S&P 500 is more than 6% in 2018, but less than half that since the Berkshire buyback change became public.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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