Berkshire has long held cash in short-term government bonds to give the company the flexibility to pay out catastrophic insurance claims and have reserves ready for multibillion-dollar acquisitions.
“There are some things people shouldn’t be worried about,” Buffett, 92, said. “This is one.”
Jim Shanahan, an analyst at Edward Jones, said he expects Buffett to continue investing cash in government bonds given the relatively high yield on offer.
“As long as there are some of these signs of economic slowdown, continued caution is warranted in the second half of the year [the] “The effects of higher tax rates remain,” he said. “As long as public company stock prices and Berkshire’s own stock price stay high, there won’t be much investment activity.”
Berkshire spent $1.4 billion on stock repurchases, far less than in the first three months of the year when the company repurchased $4.4 billion of its stock. Stocks continued to be shed, with $12.6 billion in sales outweighing $4.6 billion in purchases.
Investors will have to wait another two weeks for Berkshire to report specific changes in its holdings, though Saturday’s filing shows the company sold about 9 million shares of Chevron.
Berkshire made a profit of $35.9 billion between April and June, after a loss of $43.6 billion in the same period last year.
The numbers are skewed by movements in the value of his massive $353 billion stock portfolio, which includes shares in Apple, American Express and Bank of America. Berkshire is required by US accounting rules to reflect these shifts in its earnings even though the company hasn’t sold the shares.
Excluding those gains, Berkshire reported $10 billion in operating income at some businesses, up from $9.4 billion a year earlier. Results were buoyed by the company’s core insurance business, where insurance profits rose 74 percent to $1.2 billion, and its large holdings of cash and Treasury bills.
The company, which uses the premiums it receives on insurance policies to fund its investments, has benefited from the Federal Reserve’s move to raise interest rates. Berkshire said it had $1.4 billion in interest income for the quarter and just over $2.5 billion for the first half.
“Our return on investment will be a lot higher this year than last year, and that’s a given,” Buffett said at the company’s annual meeting in May. He estimated that the portfolio of Treasury bills could bring the company $5 billion in annual revenue if interest rates are currently above 5 percent.
Berkshire’s insurance results stood out in an industry grappling with higher costs to repair or replace cars and a series of catastrophic storms that caused billions of dollars in property damage.
Geico reported underwriting gains for the second straight quarter after more than a year of losses. The entity cut ad spend, increased insurance premiums and said it had significantly reduced the number of consumers it insured.
Investors have long viewed the company’s results as a reflection of the broader US economy, given the breadth of its holdings. Saturday’s numbers showed signs of slowing US growth and the impact of higher interest rates on consumers and businesses.
The BNSF railroad, which has more than 50,000 kilometers of track that runs from Oakland, California, to Chicago, saw its revenue fall 12 percent. Profit fell by nearly a quarter to $1.3 billion and lower demand for cargo ships was reported.
Berkshire’s Pilot rest stop operator, in which the company took a majority stake this year, sold less fuel than a year earlier — when many companies were still struggling with supply chain issues — and at lower prices, resulting in revenue growth of 32 percent.
The real estate agent and building materials division reported a decline in sales that covered the entire housing industry. The company blamed “significant hikes in home mortgage interest rates” for the falling demand.
There was a bright spot at one entity that has weighed on Berkshire: aerospace parts maker Precision Castparts. Revenue rose 29 percent year-on-year to $2.3 billion as global air travel picks up steam and airline demand for new aircraft booms.
At the height of the pandemic, Berkshire was forced to take a $9.8 billion writedown on Precision Castparts. It acquired the company in 2016 for around $37 billion.
The company explained the expected losses from wildfires in the United States. Its electric utility, PacifiCorp, was facing litigation over 2020 fires that destroyed thousands of homes and burned more than half a million acres of land in Oregon.
Mr. Berkshire warned that the entity could face “probable losses” of $1 billion, noting that beyond that amount, “significant additional losses” could be incurred. Victims of the Oregon fire are seeking more than $7 billion in damages, and the company is also defending itself against claims from California residents.
Financial Times
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