Berkshire Operating Profits Fall 4% in 2nd Quarter. Company Takes Write-Down of Kraft Equity Stake.

CEO Warren Buffett is stepping down as CEO at the end of the year. (Photo by Scott Olson/Getty Images)

Berkshire Hathaway’s operating profits after taxes were down 4% in the second quarter to $11.2 billion versus the same period a year ago, the company said Saturday.

The company didn’t buy back any shares in the second quarter, and hasn’t repurchased stock since May 2024.

Berkshire’s huge cash balance declined slightly, falling to $344 billion on June 30 from about $348 billion at the end of March.

Berkshire took a write-down of its equity investment in Kraft Heinz of $3.8 billion during the quarter. That noncash impairment of the investment in the food company aligns the market value of the roughly 27% stake, more in line with Berkshire’s carrying value of the investment.

Berkshire is now carrying the Kraft Heinz investment for $8.4 billion, in line with market value of the stake on June 30. Berkshire carries the Kraft Heinz stake under the so-called equity method of accounting since it owns more than 20% of the company. That has meant the accounting value was often different from the market value of the investment.

Kraft is considering strategic options for its various food businesses and Berkshire gave up its board seats at Kraft this year. The write-down wasn’t a surprise given that Berkshire had been carrying the Kraft Heinz equity stake above its market value for some time.

Berkshire’s operating profits per share were down nearly 4% to $7,760 per class A share in the second quarter, above the FactSet consensus of about $7,500. The profits were depressed by foreign exchange losses of $877 million after taxes related to Berkshire’s non-U. S. dollar debt. If that noncash loss is excluded, earnings were higher.

Profits rose about 15% at Berkshire’s railroad unit, Burlington Northern Santa Fe, to $1.5 billion, and were higher at the company’s utility unit, Berkshire Hathaway Energy. Insurance underwriting profits were lower but robust at $2 billion. Investment income rose slightly to $3.4 billion.

Berkshire didn’t buy back any stock in the first three weeks of July, according to the 10-Q report that came out Saturday morning. Berkshire has 1.438 million shares outstanding when the class B shares are converted to an equivalent amount of class A stock.

Some investors thought the company might resume repurchases in the second quarter or in July given the drop of more than 10% in the shares since they peaked just before Berkshire’s annual meeting on May 3. They have been pressured since then by Buffett’s announcement at the meeting that he will step down as CEO at year’s end after 60 years at the helm. He will remain chairman.

Berkshire’s class A stock ended Friday at $711,480; class B shares finished at $472.84.

Berkshire continued to be a net seller of stocks from its $268 billion equity portfolio, selling a net $3 billion of stocks. It bought $4 billion and sold around $7 billion. The portfolio value is closer to $290 billion when including the Kraft Heinz and Occidental Petroleum equity stakes that are carried under a different accounting treatment.

The Berkshire earnings were stronger than they appeared due to a negative currency impact.

Barron’s estimates after-tax operating profits, excluding the currency impact, were up about 8% in the second quarter to about $12 billion. Berkshire has issued about $14 billion of yen-denominated debt mostly to finance an equity investment in a group of Japanese trading companies.

The strong underlying profits could lift Berkshire stock Monday, although there could be some disappointment that Berkshire hasn’t been a buyer of its stock—an indication that CEO Warren Buffett doesn’t view the stock as cheap.

Berkshire’s total cash and equivalents of $344 billion were down about $4 billion from the March 31 level but were higher adjusting for about a liability for some $14 billion of Treasury bill purchases at the end of the first quarter. Adjust for that factor and cash levels were higher on June 30.

Berkshire’s total earnings fell nearly 60% to $12.4 billion. That reflects lower investment gains in the period.

The operating earnings exclude realized and unrealized gains and losses on the company’s investments, mostly its equity portfolio.

Buffett regularly advises investors to focus on the operating figure since the overall earnings can swing wildly with changes in the stock market and aren’t indicative of the company’s underlying earnings power.

“In sum, investment gains (losses) for any particular period are not indicative of quarterly business performance,” Berkshire said in its earnings statement.

Berkshire’s book value rose to $464,000 per class A share on June 30 from about $455,000 a share on March 31, Barron’s calculates. Book value, or shareholder equity per share, is followed by many Berkshire investors.

Berkshire stock now trades for 1.5 times book value—in line with its average in recent years and down from a peak of 1.8 times when the stock hit a record high of over $800,000 per class A share on May 2. Berkshire is now more reasonably valued than after its selloff in the past three months.

Berkshire’s Geico auto insurance unit had another strong quarter with pretax underwriting profits of $1.8 billion, little changed from the year-earlier period. The underwriting profit margin was strong at about 16.5%. Earned premiums grew nearly 6% in the period.

Buffett highlighted the “spectacular” improvement at Geico in his annual shareholder letter this year. Geico had required significant technology spending to upgrade antiquated systems and the company lost its No. 2 position in the auto industry to rival Progressive, which has grown policies and revenues rapidly. State Farm is the largest player in the industry.

Berkshire holders may be cheered by the sharp profit increase at BNSF, which came despite a drop of about 1% in quarterly revenues. BNSF has some of the lowest margins among the major North American railroads and has been working to improve its profitability.

There remains speculation that Berkshire may participate in rail consolidation by buying CSX, after BNSF’s chief rival, Union Pacific, reached a deal with Norfolk Southern, which is one of the two main Eastern railroads along with CSX.

Write to Andrew Bary at andrew.bary@barrons.com