Berkshire Hathaway Moat Breached By Virus Shutdown

Daniel Fowler
August 9, 2020

Berkshire Hathaway, the holding company of Warren Buffett, bought back approximately $5.1 billion of its own shares in the second quarter as it was hit hard by economic fallout from the coronavirus pandemic.

Berkshire (BERK) had net earnings of $26.3 billion, or $16,314 per Class A share equivalent, from $14.1 billion, or $8,608 per Class A share in the year-earlier quarter.

Those repurchases confirmed Berkshire's hint in a July 8 regulatory filing it had become more aggressive with buybacks after loosening its buyback policy in 2018.

Berkshire, which acquired Precision for US$32.1 billion in 2016 in its largest acquisition, and which Buffett at the time called a steep price, said COVID-19 caused airlines to slash aircraft orders, resulting in significantly less demand for Precision's products. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Outside of Precision, the pandemic's impact on Berkshire's businesses was significant, with all businesses reporting lower income except some of insurance operations which did OK such as vehicle insurer, Geico. Operating profit fell 10pc to $5.53bn. But much of the rebound was the result of a turnaround in the overall stock market.

Berkshire businesses suffering from the pandemic also include the BNSF railroad, which saw lower shipping volumes, and retailers including See's sweets that temporarily closed stores.

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Buffett also found a way to use more of that cash after the quarter ended.

Berkshire said it also took a $513m charge on its 26.6pc stake in Kraft Heinz, which on July 30 took writedowns on several of its businesses, including its Maxwell House and Oscar Mayer brands.

An accounting rule requires Berkshire to report unrealized stock losses and gains with net results, causing huge swings that Buffett considers meaningless. Berkshire posted a $49.7bn net loss in the first quarter. By that measure, Berkshires operating earnings declined 10% to $5.5 billion, or $3,420.48 per Class A share, as most of its businesses were hurt by restrictions related to the coronavirus pandemic.

Like all auto insurers, Geico benefited from lower claims because there were fewer accidents as people drove less with many people working from home. It was $ 6.1 billion (about Rs 45,775 crore) in the year-ago quarter.

Buffett has since deployed some cash, agreeing to buy some Dominion Energy gas assets for $4 billion and adding more than $2 billion of Bank of America Corp stock.

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