Berkshire After Buffett Stops Hoarding Cash and Resumes Investing and Share Buybacks

[Financial News]  

Berkshire Hathaway, where Warren Buffett has stepped back from day-to-day management, appeared to be pursuing a different strategy in its quarterly earnings release on the 8th local time. It has ended its record cash buildup and instead resumed investing and share repurchases.
According to CNBC, Greg Abel, who succeeded Buffett as Berkshire CEO, used Buffett’s record cash pile to buy back shares and restart stock investments.
That was the most notable feature of the quarterly results, as Berkshire’s operating profit rose 16% from a year earlier in the second quarter.
However, Berkshire’s return to investing was selective and limited to a few stocks, so its impact on the broader market is expected to be modest.

Berkshire’s second-quarter operating profit rose 16% to $12.98 billion from $11.16 billion a year earlier.
Operating profit in manufacturing, services and retail climbed 24% to $4.47 billion, while operating profit at railroad subsidiary BNSF Railway increased 6% to $1.56 billion.
Higher oil prices driven by the Iran war also provided a major boost.
Operating profit at Berkshire’s energy division surged 27% to $891 million.
By contrast, the insurance business that had long supported Berkshire struggled.
Insurance underwriting profit fell 13% year on year, dropping from $1.99 billion to $1.73 billion. That means profit after deducting claims paid from premiums, as well as operating and administrative costs, declined by 13%.
Returns from investing insurance premiums were also weak. Investment income fell 9% to $3.06 billion.

Berkshire, which had suspended share buybacks for some time, repurchased about $4.5 billion worth of stock in the second quarter under Abel. Abel took over the CEO role from Buffett earlier this year.
After testing the waters in the first quarter with $235 million in buybacks, he launched a full-scale repurchase program in the second quarter.
Berkshire also returned to stock investing in the second quarter, posting net purchases of nearly $20 billion.
Through the first quarter, Berkshire had recorded net stock sales for 14 consecutive quarters.
As share buybacks and stock investing resumed, Berkshire’s cash holdings fell to $365.5 billion at the end of June from a record $397.4 billion at the end of March.
With Buffett having handed over the CEO role this year and stepped down to chairman, Abel has resumed investing after a long period of caution.
Still, the fact that investments were limited to only a handful of names and that Berkshire continues to hold more than $360 billion in cash suggests it remains unconvinced about the market.
For that reason, analysts say the renewed investing is likely to have only a limited effect on the stock market.

As of the end of June, Alphabet had newly entered Berkshire’s top five investment holdings.
Berkshire was found to hold large stakes in Alphabet, the parent company of Google, alongside its traditional holdings Coca-Cola, Bank of America (BofA), American Express Company (AmEx), and its largest holding, Apple.
Earlier, Berkshire invested $10 billion in Alphabet at the start of the year.


[email protected] Song Kyung-jae Reporter