The massive pile of cash
The elephant in the room with Berkshire Hathaway is the question surrounding what will be done with the mountain of cash it's currently sitting on.
At the end of June, Berkshire had $55.5 billion in cold, hard cash sitting on its balance sheet. Astoundingly, that's nearly $20 billion more than it had in June of last year:
In other words, in one year's time, Berkshire brought in cash roughly equivalent to the market value of Chipotle Mexican Grill.
So the question becomes, what will Buffett do with all of that cash? We know of the $3 billion in financing Berkshire provided to Burger King Worldwide (UNKNOWN:BKW.DL) so it could acquire Tim Hortons (UNKNOWN:THI.DL).
And there was also the acquisition of Van Tuyl Group, formerly the nation's largest privately owned auto dealership group, which carried an estimated $4 billion price tag, according to Auto News.
But even knowing the Van Tuyl acquisition was made in October -- and won't show up in this quarter's earnings report -- the thing is, Berkshire added $7 billion in cash in the first six months of this year alone, meaning those deals won't exactly move the needle.
So having said all that, the question becomes, what else is Berkshire doing with its money? Are its subsidiaries making the smaller "bolt-on" acquisitions that don't gather headline attention? Buffett said in 2013 that there were 25 such moves, with costs ranging from $1.9 million to $1.1 billion.
Or is it being invested into the stock of specific businesses?
Or is Buffett slowly building the cash pile that will allow him to make "a really good $50 billion deal," as he put it earlier this year?
Undeniably Berkshire has a ton of cash, and I'll be watching to see whether there's any answer to the biggest question of all: What will be done with it?
Is the railroad losing steam?
Nearly every businesses at Berkshire seems to be doing well, but as noted in coverage of last quarter's earnings, BNSF, the railroad Berkshire owns, had a bit of a rough spell, as management revealed:
During the second quarter of 2014, our volumes increased but service levels continued to be well below our internal standards, as well as those expected by our customers. As a result, we continued to experience operating inefficiencies.
As a result, even though revenue rose by 5% for the railroad through the first six months of the year, its net earnings fell by 2.5%, or $42 million.
This isn't an immediate cause of concern, though:
We are working diligently to promptly address these service issues. Our planned capital investments and new employee hiring in 2014 will expand capacity and help us to improve and maintain service levels in the future.
But it will nonetheless be an important thing to monitor to see whether the ship -- or, in this case, the railroad -- has be righted.
The last thing to watch is to see whether we get any further detail on the progress of Berkshire's 50% stake in Heinz. Through the first six months of the year, Berkshire has netted $360 million in dividends from its preferred stock investment, but it lost $20 million from its common stock stake.
As with any takeover and subsequent restructuring, there are always costs recognized as the new management rolls in, so the common stock loss isn't much of a concern. But the takeover officially began in June 2013, so the third quarter will mark the first full quarter after the one-year acquisition honeymoon period.
So far, very little detail has been provided on exactly how well Heinz is doing apart from just bottom-line results, which never tell the whole story, so it will be important to monitor what, if any, detail we get about Heinz.
And while the current losses are of little concern, continued losses will raise a red flag.
But of course, knowing the $12 billion stake in Heinz is just a small part of the $500 billion Berkshire empire, we must also remember to be patient with how it all progresses.