Berkshire Hathaway’s
earnings will be only part of the story when the company reports its second-quarter financial results at 8 a.m. Eastern time Saturday.
Investors also will be focused on stock buybacks at Berkshire Hathaway (ticker: BRK/A, BRK/B), potential changes in the company’s big equity holdings, notably
Apple
(AAPL) and
Chevron
(CVX), as well as its cash levels.
Berkshire Class A shares, which rose 0.4% to $533,400 have had a good 2023, rising almost 14% but trailing the 20% total return in the S&P 500 index. The stock is within 1% of its record high set in March 2022. The Class B shares, up 0.6% to $351.96 Monday, are about 2% from their peak of $359.57.
Berkshire stock has been bolstered this year by sizable appreciation in its $380 billion equity portfolio led by Apple, which accounts for nearly half of it. Apple shares at $196 are up about 50% this year, and Berkshire’s stake is worth around $180 billion, or almost a quarter of Berkshire’s market value of $766 billion.
Berkshire’s operating earnings are seen declining 11.5% to $5,576 per class A share in the second quarter from the year-earlier period.
Last year’s second-quarter results got an artificial boost from the dollar’s rise against the yen which reduced the value of Berkshire’s yen-denominated debt that hedges the company’s roughly $20 billion of equity holdings in five Japanese trading companies including Sumitomo.
UBS analyst Brian Meredith has an above-consensus second-quarter estimate of $5,981 per A share for the second quarter. In a recent note, Meredith wrote that he sees higher profits at Berkshire’s Burlington Northern railroad unit offset by some pressure on insurance earnings due to higher catastrophe insurance losses in the worst second quarter for the industry in a decade.
Meredith projected that Geico, Berkshire’s auto insurance business, had an underwriting loss of about 3% in the second quarter, worse than an underwriting profit in the first quarter, due in part to catastrophe losses. Geico and the rest of the auto insurance industry have had tough 18 months due to elevated claims costs and they have sharply raised rates by double-digits to offset that.
Meredith sees $2.2 billion of stock repurchases in the second quarter, down from $4.4 billion of stock in the first quarter but above the pace in 2022 when the company repurchased $7.9 billion for the full year. Investors focus on the buyback as a sign of CEO Warren Buffett’s view on the stock with increased purchases indicating that Buffett thinks its shares are cheap.
Berkshire reduced its stake in Chevron by about 20% in the first quarter and that was revealed in Berkshire’s 10-Q report released in May.
Investors will be interested to see if Buffett continued to reduce the Chevron stake in the second quarter—or potentially added to it. The 10-Q will also show whether Berkshire changed its huge Apple stake of about 915 million shares. The filing shows Berkshire’s top five equity holdings at quarter-end.
Berkshire held $150 billion of cash at the end of the first quarter and the total could be higher on June 30 due to some sales of
Activision Blizzard
(ATVI) in the period.
Berkshire’s book value is expected to rise to $370,000 per A share in the second quarter, according to Edward Jones analyst James Shanahan. That would put the stock at more than 1.4 times book value, somewhat above the five-year average. Book though likely rose during the current quarter due to the rise in Apple stock. Barron’s estimates the current book at about $375,000 per class A share.
Write to Andrew Bary at [email protected]
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