Updated Aug 14 at 10:47am ET.
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Berkshire reported operating earnings of about $13 billion for the quarter, up from $11.2 billion a year ago. Operating earnings are the best way to track the company because they exclude the daily swings in its stock portfolio and focus on the actual profits from its railroads, utilities, and insurance businesses.
The company also began putting its massive cash pile to work, investing billions into stocks like Alphabet and increasing its own share buybacks. When Berkshire buys its own stock, it reduces the total number of shares, making each remaining share own a larger piece of the business. This shift suggests management is finding more attractive places to put money than just letting it sit in the bank.
Source: 8-K filing
Geico is seeing a sharp rise in the cost of injury claims, which fell 45 percent in the recent quarter. While car crashes are not happening more often, the price of settling each claim has climbed 10 percent in the last year alone.
This trend is a risk for Berkshire because insurance is its most important engine. The business relies on "float," which is the pool of customer premiums it holds and invests before paying out claims. If the cost of those claims rises faster than Geico can raise its prices, it leaves less cash available for the company to invest elsewhere.
Source: Forbes
CEO Greg Abel invested about $10 billion into Google-parent Alphabet last quarter as part of a $20 billion buying streak. This marks a major shift in strategy from the last three years, when the company mostly sold stocks to build up a record cash pile.
For a long-term owner, this is a signal that management finally sees better value in the market. Berkshire's biggest challenge has been finding ways to spend its $334 billion in cash, and moving billions into a high-growth tech giant suggests a more aggressive approach to growing the portfolio.
Source: CNBC International TV
Berkshire's CFO Charles Chang and general counsel Michael O'Sullivan both bought shares using their own money this week. Chang purchased two Class A shares for $1.5 million, while O'Sullivan bought 488 Class B shares for $250,000.
Open-market purchases like these are often seen as a sign of confidence. Unlike stock awards that are part of a pay package, these executives chose to put their own cash into the company at current prices.
Source: Barrons
Federal Reserve Governor Lisa Cook stated she is prepared to vote for an interest rate hike if inflation does not show clearer signs of slowing. While higher rates often hurt stocks by making it more expensive for companies to borrow money, they can be a benefit here.
Because the company holds a massive amount of cash in U.S. Treasury bills, short-term government debt, higher rates mean it earns more interest income on that money. This makes the business one of the few large firms that can see a direct profit boost when the central bank raises rates.
Source: CNBC
Analysts have been quiet lately, with no major changes to their ratings or price targets despite recent news about the company's cash usage. Only 4 of 10 analysts rate the stock a buy, and the average target is 8% below the current price.
The company has a habit of clearing the bars set by analysts, often by a wide margin. This suggests the underlying businesses are even more profitable than many experts expect.
| Expectation | |
|---|---|
| EPS | $5.58 |
| Revenue | $100.81B |
Barrons · Aug 14
Seeking Alpha · Opinion · Aug 14
Business Wire · Press release · Aug 12
Seeking Alpha · Opinion · Aug 12
Investors Business Daily · Aug 10
Investopedia · Aug 10
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