By Jonathan Stempel
(Reuters) – Berkshire Hathaway (NYSE:) Inc, the conglomerate run by billionaire Warren Buffett, on Saturday reported a 67 percent increase in quarterly operating profit, as insurance underwriting rebounded and several businesses benefited from a growing economy and improving demand.
Results easily topped analyst forecasts. Underwriting profit at the Geico auto insurance unit more than quintupled, the BNSF railroad benefited from demand to ship consumer products, grain, petroleum and steel, and the Berkshire Hathaway Automotive car dealership financed more vehicle purchases.
“Good results across the board,” said Doug Kass, who runs the hedge fund Seabreeze Partners Management Inc in Palm Beach, Florida. He has at times in recent years sold Berkshire shares short, betting on a decline.
Berkshire also said net income in the second quarter nearly tripled to more than $12 billion, though that reflected a new accounting rule requiring that it report unrealized gains on its stock investments with earnings.
Buffett says that rule distorts net results and can mislead investors.
Operating profit rose to $6.89 billion, or roughly $4,190 per Class A share, from $4.12 billion, or $2,505 per share, a year earlier.
Analysts on average expected operating profit of $3,387 per share, according to Thomson Reuters I/B/E/S.
Net income rose to $12.01 billion, or $7,301 per Class A share, from $4.26 billion, or $2,592 per share, a year earlier.
Results also reflected a decline in Berkshire’s effective income tax rate, to 20 percent from 28.9 percent, following last year’s cut in the federal corporate tax rate.
Berkshire is based in Omaha, Nebraska, and has more than 90 businesses in the insurance, chemicals, energy, food and retail, industrial parts, railroad and other sectors.
BITING INTO APPLE
Book value per Class A share, which reflects assets minus liabilities and is a preferred measure of growth for Buffett, rose 3 percent from the end of March to $217,677.
Berkshire also ended June with $111.1 billion of cash and equivalents, some of which Buffett could use to repurchase stock under a new policy giving him and Vice Chairman Charlie Munger more freedom to conduct buybacks.
The policy change reflected Buffett’s struggles to find big acquisitions for Berkshire. He has made none since the $32.1 billion purchase of aircraft parts maker Precision Castparts in January 2016.
Buffett has spent some money on stocks, and Berkshire said it ended June with a $47.2 billion stake in iPhone maker Apple Inc (NASDAQ:).
Apple’s share price at that time suggests that Berkshire may have bought roughly 15 million additional shares in the second quarter, on top of the 239.6 million it already owned.
Berkshire said it spent $6.08 billion on equity securities in the second quarter. It has not bought back stock in 2018.
Class A shares of Berkshire closed Friday at $304,671, or 7 percent below their Jan. 29 peak, while Class B shares closed at $200.24, or 8 percent below its peak on the same day.
Insurance underwriting profit totaled $943 million, compared with a year earlier $22 million loss.
Geico’s pre-tax underwriting profit rose to $673 million from $119 million, after it boosted rates in response to rising accident and storm losses.
Underwriting gains from Berkshire’s main reinsurance group rose eightfold from a year earlier, when a cyclone in Australia cut into profit.
Float, or insurance premiums collected before claims are paid and which help fund Berkshire’s growth, ended June at $116 billion, the same as in March.
BNSF saw profit surge 37 percent to $1.31 billion, benefiting from “general economic growth” that led to more shipments of consumer goods, and helped by demand for fertilizer, grain, petroleum products, plastics, sand and steel.
Profit from manufacturing, services and retailing units rose 29 percent to $2.14 billion, reflecting demand for aerospace products from Precision Castparts, and higher profit at Berkshire Hathaway Automotive and the German motorcycle accessories business Detlev Louis Motorrad.