Berkshire Hathaway reported on Saturday that its second-quarter operating profit rose 16% to $12.98 billion, exceeding analyst forecasts. The Omaha, Nebraska-based conglomerate began reducing its cash holdings by investing in stocks and accelerating its own share repurchases, marking an end to 14 consecutive quarters as a net seller of shares.
The company, led by Chief Executive Greg Abel, reported that its cash stockpile fell to $364.7 billion by the end of June, down from a record $380.2 billion three months earlier. The reduction followed $20 billion in net stock purchases, including a $10 billion addition to its investment in Alphabet, the parent company of Google and YouTube.
Operating results were driven by gains at the BNSF railroad and service businesses like NetJets and TTI, which offset a 45% decline in pre-tax underwriting profit at Geico. Overall net income more than doubled to $25.67 billion, a figure that includes unrealized gains on stocks Berkshire still holds. The company noted that consumer-facing businesses like Fruit of the Loom and its auto dealerships experienced falling demand, which it attributed to changes in consumer confidence.
The scale of this shift is reflected in the $20 billion swing toward net stock purchases after three and a half years of selling more shares than it bought. Individual investors and institutional funds holding Berkshire stock will notice that the company's Class A shares have risen 3% this year, though they currently trail the S&P 500 index's 13% gain. The company's performance at consumer units like its 103 car dealerships and Forest River RVs serves as a direct indicator of U.S. consumer spending power, which Berkshire reported is being pressured by macroeconomic uncertainty and geopolitical events.
What happens next depends on the company's assessment of its "intrinsic value." Berkshire's policy allows for continued buybacks as long as the stock price remains below a level determined by Abel and Buffett. While Geico struggles with rising accident claims and high marketing costs, the company’s railroad and energy sectors showed growth, with Berkshire Hathaway Energy reporting a 27% profit increase. Investors will be monitoring future quarterly filings to see if the company continues to trim its cash reserves or if macroeconomic concerns lead to a return to net selling.