Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) reported its second-quarter earnings on Saturday, and as usual, there weren't too many big surprises. Berkshire's operating businesses grew their revenue slightly over the past year, the stock portfolio performed quite well (as did the overall stock market), and Berkshire continues to have a ton of cash on its balance sheet.
With that in mind, here's a rundown of the company's second-quarter results and what investors need to know.
The headline number, with a big caveat
Berkshire Hathaway earned $5.74 per class B share for the second quarter, a 18% increase over the second quarter of 2018. However, there's one big caveat to keep in mind. Berkshire's earnings include unrealized gains from the company's massive stock portfolio.
The S&P 500 increased by 4% for the quarter, and some of Berkshire's top holdings performed quite well. In all, Berkshire's earnings included $7.77 billion in investment gains for the quarter, sharply higher than the $5.12 billion in the same quarter a year ago.
How did Berkshire's business actually perform?
Even Warren Buffett acknowledges that Berkshire's earnings per share figures are pretty meaningless. So let's take a quick look at how Berkshire's businesses performed.
Total revenue generated by Berkshire's operating businesses increased 2.3% year over year to $63.6 billion. And Berkshire's operating earnings came in at $6.14 billion, a decrease of about 11% from the second quarter of 2018 but a 10% increase when compared to the first quarter of 2019. The year-over-year decline was due in part to lower underwriting income at Berkshire's insurance operations.
Cash, cash, and more cash
At the end of the second quarter, Berkshire Hathaway held $122.4 billion in cash and equivalents on its balance sheet, an increase from $114.2 billion at the end of the first quarter. This is the highest the company's cash hoard has been and indicates that the company once again had trouble finding attractive ways to deploy capital in the second quarter, both in terms of the stock market and acquisitions. Buffett likes Berkshire to keep $20 billion in cash at all times, so that translates to over $100 billion in usable cash.
We already know that Berkshire significantly raised its Bank of America (NYSE:BAC) stake, but it's unclear whether that investment took place before or after the end of the second quarter. And Berkshire committed $10 billion to invest in Occidental Petroleum (NYSE:OXY), but this deal is yet to close.
Of course, Berkshire's cash could have risen because the company decided to sell a significant amount of stocks, and it appears that Berkshire was in fact a net seller of stocks during the quarter. The company reported a total cost basis of $102.6 billion for its equity securities at the end of the second quarter, down from $102.9 billion at the end of the first quarter.
However, by far the largest contributing factor to Berkshire's growing cash hoard is that good investment opportunities remain elusive. We'll get more clarity on this once Berkshire's 13F filing is released on Aug. 15.
Buybacks were much lower
In addition to not finding any common stocks or acquisitions during the second quarter, Berkshire was also far less aggressive when it came to buying back its own stock.
For the second quarter, Berkshire bought back just over $400 million in stock, a sharp decline from the $1.7 billion the company spent in the first quarter. The company paid a weighted average of $306,933 for the 281 Class A shares it bought and $201.50 for the 1,766,140 Class B shares it repurchased during the period.
The bottom line on Berkshire's second quarter
As I mentioned, there weren't too many big surprises. If anything, investors might be disappointed that Berkshire wasn't able to put more of its cash to use in the quarter on stock purchases, acquisitions, and buybacks. However, Berkshire's businesses seem to be performing well and the company now has an even more massive stockpile of cash to take advantage of any opportunities that may arise.
It's also important to emphasize that since so much of Berkshire's value is in its stock portfolio, there's still more information to be learned about the company's quarter. When Berkshire releases its updated 13-F filing on Aug. 15, we'll find out more about the major moves the company made in its stock portfolio.