Wide-moat-rated Berkshire Hathaway (BRK.A/BRK.B) reported adjusted, second-quarter operating results that were more or less in line with our expectations. We are leaving our $640,000 per Class A and $427 per Class B share fair value estimates in place.
• Morningstar Rating: 3 stars
• Fair Value Estimate: $640,000.00/$427.00
• Economic Moat: Wide
• Morningstar Uncertainty Rating: Low
What We Thought of Berkshire Hathaway’s Earnings
Second-quarter (first-half) revenue, including unrealized and realized gains/losses from Berkshire’s investment portfolios, decreased to $117.5 billion ($209.3 billion) from $125.6 billion ($245.7 billion) in the year-ago period(s) as the company lapped significant unrealized and realized investment gains during the first half of 2023. Excluding the impact of investment gains/losses and other adjustments, second-quarter operating revenue increased 1.2%, and first-half OR increased 3.2% year over year to $93.7 billion ($183.5 billion).
Operating earnings, exclusive of investment gains/losses, increased 15.5% (26.0%) year over year to $11.6 billion ($22.8 billion) during the June quarter (first half of the year), with strong insurance results continuing to compensate for weakness in other segments. When including the impact of the investment gains/losses, reported operating earnings decreased to $30.3 billion ($43.1 billion) from $35.9 billion ($71.4 billion) in the prior year’s period(s).
Book value per share, which still serves as a decent proxy for measuring changes in Berkshire’s intrinsic value, increased 4.5% sequentially and 11.4% year over year to $415,668 (from $397,627 and $372,966 at the end of March 2024 and June 2023, respectively).
Record Cash on Hand as Berkshire Slashes Apple Stock
Of note was the fact that Berkshire sold off close to half of its Apple AAPL stake and invested the proceeds in US Treasury Bills.
The company closed out the second quarter with a record $276.9 billion in cash and cash equivalents, up from $189.0 billion at the end of March 2024. Free cash flow reached $9.1 billion in the second quarter, and Berkshire also sold on a net basis $75.5 billion of its stock holdings (primarily Apple, from what we can tell) in an apparent derisking move (noting that Apple’s shares ran up 23% during the second quarter).
Unfortunately, Berkshire repurchased just $356 million of its own shares during the June quarter, the firm’s lowest quarterly buyback total since CEO Warren Buffett started acquiring the company’s stock back in the third quarter of 2018. From our perspective, we weren’t too surprised, as the shares have stayed close to our fair value estimate the past few months.
