Berkshire Hathaway’s Operating Earnings Increase 18% in Second Quarter

After the market closed on August 5, Berkshire Hathaway reported its financial results for the second quarter of 2016.   

Operating earnings (Warren Buffett’s preferred measure of profits) rose by 18% during the second quarter as compared to the corresponding period last year.  This represents a turnaround from the first quarter when operating profits declined by 12%.  This increase was helped out by an improved performance at Geico, where premiums written rose by 11% resulting from growth in new policies and rate increases.  There were also positive contributions in manufacturing from the recent acquisitions of Precision Castparts and Duracell.  However, net earnings declined by 20% at Burlington Northern Santa Fe Railroad, as unit volume dropped by 7.5%.  Profits also declined by 4% at Berkshire Hathaway Energy.

Overall, net income rose by 25%.  However, this result which includes investment and derivative gains/losses, is largely ignored by Buffett “because the amounts of these in any given quarter or year are usually meaningless“.

Berkshire’s cash totaled $73 billion as of June 30, which included an $8 billion addition resulting from the redemption of the preferred shares of Kraft Heinz.  Since Buffett sets aside $20 billion in cash at all times, approximately $50 billion is available for one or more large acquisitions.

Berkshire’s book value rose to $160,000 on June 30.  At Berkshire’s closing price of 218,000 on August 5, its shares are now valued at 1.36 times book value.  Buffett has previously announced his intention to buy back shares when the price to book value drops below 1.2.

ValueWalk and Investing.com have published this blog post.