Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%) recently reported its second-quarter earnings results, and if you follow the company, you might know that its earnings report isn't like that of other companies.
For one thing, its bottom-line "earnings" number is deceptive. And investors tend to focus on things that are often secondary concerns with other companies, such as cash on hand and stock buybacks. With that in mind, here's a rundown of the key points investors should know about the Warren Buffett-led conglomerate.
Operating business performance
Berkshire Hathaway's bottom-line earnings number doesn't do a great job of showing how the company's business is performing. Due to accounting rules, it includes the unrealized gains from Berkshire's massive stock portfolio. For context, this resulted in a $33 billion "profit" in the second quarter and a $67 billion "loss" in the same quarter of 2022. But these aren't actual profits and losses -- simply changes in the value of stocks Berkshire owns. Even Buffett himself has cautioned that Berkshire's earnings per share is a pretty useless number.
Berkshire's operating businesses generated $92.5 billion in revenue in the second quarter and produced $10.04 billion in profits. This was nearly 7% year-over-year growth in the operating businesses, fueled by an especially strong performance in insurance.
The cash stockpile is growing fast
One of the key things investors watch for when Berkshire Hathaway reports earnings is how much cash it has on hand. In recent years, the cash hoard has steadily remained well over $100 billion, which gives Buffett and his team tremendous firepower when it comes to pursuing investment opportunities. Buffett has made it no secret that he'd love to find a big acquisition, and a growing stockpile of cash will allow him to do that when the time is right. But in the meantime, higher interest rates have allowed Berkshire to earn billions in annual interest income from its unused cash.
At the end of the second quarter, Berkshire held a total of $147.4 billion in cash and short-term investments. Not surprisingly, $97.3 billion of this was held in short-term Treasuries, but these can still be considered "cash" for the purposes of Berkshire's ability to make investments. This was up sharply from a cash position of about $130.6 billion at the end of the first quarter.
Buffett insists on keeping $30 billion or so on hand at all times, but this still leaves a massive war chest of investable cash. Just to put things in perspective, this means Berkshire could potentially acquire companies in the same size category as Starbucks, BlackRock, or CVS Health and still maintain enough reserves to keep Buffett happy.
Stock buybacks
Berkshire has a buyback program that allows the company to buy back as much of its own stock as it wants, as long as both Buffett and Charlie Munger agree that it is trading for less than its intrinsic value.
That appears to still be the case, but Buffett and Munger may not perceive quite as much of a discount anymore. Berkshire spent $1.4 billion on buybacks in the second quarter, down significantly from the $4.4 billion spent in the first quarter. This is one of the reasons the cash stockpile grew as much as it did.
Notably, Berkshire bought back the most stock in June (by far) during the quarter. In fact, April and May combined for just one-fourth of the company's buyback volume in the second quarter. Given the ongoing turbulence in the banking sector (and the broader stock market) during those months, it's not surprising that Berkshire may have taken a "wait-and-see" approach.
A net seller of stocks (again)
It's not clear what stocks Berkshire bought or sold during the second quarter -- investors will have to wait until it files its 13-F with the Securities and Exchange Commission next week.
Having said that, Berkshire was a net seller of stocks during the quarter. At the end of the first quarter, Berkshire's stock portfolio had a total cost basis of $121.3 billion, and this number dropped to $115.7 billion by the end of June. With the market's strong rebound and the fact that the banking industry turbulence extended into the second quarter, this isn't a big surprise, but it's one of the main reasons why Berkshire's cash position increased so rapidly.
A solid quarter with few surprises
The bottom line is that Berkshire's operating businesses had a solid quarter, and beyond that there weren't too many surprises. The addition of more than $16 billion to the cash position was a more rapid pace than many were expecting, but given the generally higher share prices of Berkshire and other stocks, as well as the market turbulence in April and May, it isn't much of a shock that Berkshire pumped the brakes on buybacks and took some money off the table in the stock market.
