Warren Buffett’s Berkshire Hathaway is benefiting from the US economic recovery.

As the pandemic swept the United States last year, the conglomerate’s manufacturers and retailers rebounded in the second quarter after being hit hard. This group of companies announced their second highest quarterly profit since mid-2009 and helped drive Berkshire’s total operating profit growth by 21% during this period.

Edward Jones analyst Jim Shanahan said in a telephone interview: “All other old economies, manufacturing, services, retail and transportation really reflect the broad economic recovery that drove this quarter’s results.” “There is a housing here. From a perspective, I think this is a very strong contributor this quarter.”

Buffett has built Berkshire into a wide-ranging enterprise with a foothold in industries such as insurance, energy, and retail. But last year, because companies including See’s Candies had to give employees leave at the beginning of the shutdown, this wide-ranging impact on the U.S. economy put pressure on it. Now, the prospects seem brighter.

Berkshire Hathaway said in a regulatory document on Saturday: “Compared with 2020, many of our businesses’ revenues in the first half of 2022 were significantly higher than those in 2020, including the major disadvantages caused by the pandemic. Impact.” “Our manufacturing, service, and retail business revenue in 2022 benefited from higher customer demand in many of our businesses, and it also exceeded revenue in 2019.”

Berkshire Hathaway’s construction products company group occupied a special source of strength during the quarter. Thanks to the boom in housing construction in the United States, the income of these businesses has increased by nearly 40%. Berkshire’s shareholder Tom Russo said that the strength of these businesses, coupled with the challenge of disrupting them through technology, makes them a Berkshire component. important parts of.

“These businesses have some kind of potential recurrence, and I think it makes them attractive,” Russo, who is responsible for managing $10 billion, said in a telephone interview, including an investment in Gardner Russo & Quinn LLC Berkshire stock.

What Bloomberg Intelligence says

“Warren Buffett’s Berkshire Hathaway is expected to achieve a solid 2H in the second quarter with an operating income growth of about 30%. This is a simple comparison, but all four market segments have higher returns The average for 2016-19. ”

– Senior Industry Analyst Matthew Palazzola and Associate Analyst Kelly Tobin

Nevertheless, since the beginning of the outbreak, supply chain pressure has been a persistent economic theme, and Berkshire Hathaway has not been spared. Berkshire said that rising costs of certain materials such as wood and steel have caused some of its businesses to increase their prices.

Not all Berkshire’s businesses have rebounded completely. Precision Castparts Corp. produced aircraft parts and suffered a significant write-down last year. The report said revenue declined during this period, although revenue rose slightly due to efforts to restructure the business. Berkshire Hathaway warned that supply chain issues may continue to affect the business.

Berkshire stated in the document: “The Covid-19 pandemic has led to a significant decline in commercial air travel and aircraft production in 2020.” “Although air travel in the United States is increasing in 2022, due to the current inventory levels in the industry’s supply chain, We don’t expect PCC’s aerospace demand to see significant growth in the short term. Therefore, we expect PCC’s revenue and earnings in 2022 to be lower than pre-pandemic levels.”

Here are other highlights of Berkshire’s second quarter earnings:

Repurchase

Berkshire Hathaway has withdrawn one of Buffett’s more frequently used capital allocation levers in recent years. The conglomerate repurchased US$6 billion in stocks, which was lower than the US$6.6 billion repurchased in the first three months of this year. June was the busiest month for the company to repurchase.

This keeps Berkshire’s cash reserves at $144 billion fairly stable, slightly below its record size. In recent years, Buffett has been trying to find attractive ways to make this money work, and this situation continues in the second quarter.

“He is very sensitive to the price of repurchase,” said Bill Smead, chief investment officer of Smead Capital Management, which oversees investments including Berkshire stock.

Despite this, the $6 billion repurchase is the fourth highest share repurchase since Berkshire’s 2018 policy adjustment. And there are signs that the relatively high level of repurchase may continue. The documents show that from the end of June to July 26, Berkshire appeared to have repurchased at least $1.7 billion in stocks.

Stock sale

Buffett continues to be quite cautious about the US stock market. During this period, Berkshire eventually sold a net $1.1 billion in stocks, which was the third consecutive quarter that it became a net seller.

As the Standard & Poor’s 500 Index hit a new high this quarter, the conglomerate is facing more expensive stock prices. Part of the sales seems to come from the reduction of Berkshire Hathaway’s industrial, commercial and other stocks. The exact investment cuts by the company will appear in regulatory filings later this month.

“I don’t think stocks are cheap. I think many areas of the market are fully priced, or may exceed fully priced,” said James Armstrong, who manages assets including Berkshire stock as the president of Henry H. Armstrong Associates. “There is no rush to put money into fully priced or overpriced stocks. So I think you just see Berkshire’s good discipline.”

Car accident

Auto insurance companies have already felt the pain of more drivers on the road, and Berkshire Hathaway’s Geico is no exception. The company’s underwriting profit fell by nearly 70% in the second quarter.

It is affected by the increase in the frequency of losses and the severity of claims.During the U.S. reopening period, more drivers driving affect the frequency

CFRA Research analyst Cathy Seifert said: “Insurance performance is particularly weak.” “What we see from many operators is that compared with the same period last year, in the second quarter of 2020, people are in lock-in mode and people are not driving, so Both the frequency and severity dropped. Then, we started to see a little bit of change. As a result, the frequency of claims has increased significantly compared to the same period last year.”

Railway revenue

Berkshire’s railway company BNSF posted a record quarterly profit, thanks to its past efforts to increase productivity and economic recovery.

Freight volumes have increased in all product categories-consumer goods, industry, agriculture, and coal. Berkshire said that consumer goods transportation benefits from e-commerce activities and automobile transportation.

“They report that sales growth is very strong,” Edward Jones’ Shanahan said. “The real power of the BNSF results is that the profit margins are very high.”

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