On Saturday, August 8, Warren Buffett-owned Berkshire Hathaway (NYSE: BRK.A) announced its second-quarter earnings, as the company faces a major impact with the Coronavirus pandemic. While the company made only one big investment in Dominion Energy, Buffett has been watching the situation carefully.
Rather than putting his money in other companies, Berkshire Hathaway purchased $5.1 billion worth of its own stock in May and June. The company repurchased more than $4.6 billion of its Class B stock and nearly $486.6 million of its Class A shares.
This is the second buyback by the company over the last year, and the most ever in a single period. Last year in Q4 2019, Berkshire purchased nearly $2.2 billion worth of its stock. The purchase came against the company’s massive liquidation into other stocks during the same period. Berkshire sold a massive $13 billion worth of stock holdings mostly from the airline industry and some from the financial industry. The Q2 2020 has been the company’s biggest-selling quarter for more than a decade.
The Coronavirus pandemic has taken the global economy on a toss as central banks release massive stimulus packages. After hitting its all-time high above $30,000 in mid-February, the Dow Jones crashed more than 40% by end of March 2020. The IMF has already announced that with the “Great Lockdown”, we are poised for the worst economic recession after the “Great Depression” of the 1930s.
While other investors were building positions after the Dow crash in March, Buffett preferred to pile more cash. Berkshire’s only big investment is in Dominion Energy Gas Assets valued at $10 billion.
Berkshire Hathaway Writes Off $10 Billion from Precision Castparts
During Q2 2020, Berkshire’s operating profits dropped 10% year-over-year from $6.14 billion to $5.51 billion. The company had to write off $9.8 billion in losses at its Precision Castparts aircraft and industrial parts unit. The airline industry has witnessed the worst impact of COVID-19 pandemic. Buffett sees no visibility for airline stocks to recover and has liquidity almost his entire position in this sector. In the regulatory filing, Berkshire wrote:
“We believe the effects of the pandemic on commercial airlines and aircraft manufacturers continues to be particularly severe. In our judgment, the timing and extent of the recovery in the commercial airline and aerospace industries may be dependent on the development and wide-scale distribution of medicines or vaccines that effectively treat the virus.”
But not all is bad for the company. Berkshire’s significant investment in Apple has helped to keep the numbers satisfactory. The company’s investment in public markets added $34.5 billion during Q2 2020. The company’s second-quarter net earnings surged 87% to $26.3 billion from last year’s $14.2 billion.
Apple Inc (NASDAQ: AAPL) is currently Berkshire’s biggest common stock holding. Moreover, the company has nearly doubled its holding since March 23. Apple stock price has surged nearly 50% year-to-date. With valuations at $1.90 trillion, Apple Inc surpasses Saudi Aramco to become the most valued public listed company in the world. However, Berkshire has warned its investors of the uncertainties present by the COVID-19 pandemic. It wrote:
“The risks and uncertainties resulting from the pandemic that may affect our future earnings, cash flows and financial condition include the nature and duration of the curtailment or closure of our various facilities and the long-term effect on the demand for our products and services.”