Berkshire Earnings Were Good—Not Great. A Real Bright Spot Was This

 

Berkshire Earnings Were Good—Not Great. A Real Bright Spot Was This

## Operating profits rose 16%, but the headline number overstated the strength. The real story was a $4.5 billion buyback signal from Greg Abel and Warren Buffett—and a dramatic return to net stock buying for the first time in nearly three years.

---

### Introduction: Good, Not Great

On Saturday, Berkshire Hathaway reported its second-quarter operating results: a 16% increase in after-tax operating profits to $13 billion . The headline number was solid. But beneath the surface, the strength was less impressive than it appeared.

The advance was driven in large part by a swing in one-time currency gains and losses that the company doesn't strip out of its earnings. The big loser was Japan's yen, which affects the carrying value of Berkshire's $15 billion of yen borrowings used to fund its equity stakes in five Japanese trading companies. Strip out the swing, and the profit gain was closer to 6% .

That's good—but not great.

Yet buried in the 10-Q filing was a real bright spot that overshadowed the mediocre profit growth. And it's a signal that could reshape the trajectory of Berkshire's stock for the rest of the year.

---

### The Bright Spot: A $4.5 Billion Buyback Signal

Berkshire repurchased about **$4.5 billion** of its own stock in the second quarter—its largest quarterly outlay for its own shares since the first quarter of 2023 . The company also bought back roughly **$3.4 billion** in July, according to a Barron's estimate based on the share count as of July 29, bringing the total to nearly **$8 billion** .

This marks a dramatic shift from the first quarter, when Berkshire spent just **$235 million** on buybacks—its first repurchases since May 2024 . The acceleration signals that CEO Greg Abel and Chairman Warren Buffett believe the shares are reasonably priced.

"Despite more difficult insurance industry backdrop, the company continues to build shareholder net worth in Greg Abel's first year as CEO," said Mac Sykes, a portfolio manager at Gabelli Funds. "Material repurchases provide confidence for shareholders that some of the best corporate capital allocators see current value" .

Berkshire is more price-sensitive on repurchases than most big companies. The fact that Abel and Buffett are buying in size suggests they see meaningful value at current levels—even as the stock has lagged behind the S&P 500 this year .

---

### The Second Bright Spot: A Return to Net Stock Buying

Beyond buybacks, Berkshire made another significant move in the second quarter: it became a **net buyer of equities** for the first time in nearly three years .

The company purchased **$23.5 billion** in common stock of publicly traded firms while selling just **$3.7 billion** . This marks one of its heaviest quarterly purchases of stocks in the past five years .

The largest disclosed addition was a **$10 billion investment in Alphabet** (Google's parent company), purchased in June when the search giant said it would be raising $85 billion of equity . Berkshire agreed to buy $5 billion of Alphabet's Class A shares at $351.81 per share and another $5 billion of its Class C stock at $348.20 per share .

The Alphabet purchase made the tech giant one of Berkshire's five largest holdings, joining longtime positions in Apple, American Express, Bank of America, and Coca-Cola. It's a notable departure from Buffett's historical skepticism of the company—and a clear signal that Abel is willing to deploy capital in the AI-driven tech sector .

---

### The Rest of the Report: A Mixed Bag

#### Operating Earnings: 16% Growth, Mostly Currency-Driven

Berkshire's operating earnings rose to **$12.98 billion** from $11.16 billion a year ago . The improvement came from several divisions:

- **Manufacturing, service, and retailing:** Earnings climbed to $4.47 billion from $3.60 billion, aided by the closing of the OxyChem acquisition at the beginning of the year .

- **BNSF railroad:** Earnings rose to $1.56 billion from $1.47 billion, a 6% increase .

- **Berkshire Hathaway Energy:** Earnings increased to $891 million from $702 million .

But BNSF continues to trail chief rival Union Pacific in profitability. The gap between the two railroads on operating ratio (expenses as a percentage of revenue) is roughly 500 basis points . Boosting profits at BNSF is a priority for Abel, and the earnings report shows more work needs to be done .

#### Insurance Weakness: A Cloud Over the Quarter

Insurance was the softer part of the report. Underwriting earnings fell to $1.73 billion from $1.99 billion, while insurance investment income dropped to $3.06 billion from $3.37 billion .

The underwriting decline reflects a more competitive pricing environment in property and casualty insurance after several years of outstanding results . Geico, the nation's No. 3 auto insurer, was among the operations feeling the pressure .

Investment income was also lower because of lower rates on the company's huge holdings of cash and equivalents—mostly Treasury bills .

#### Book Value: Steady Growth

Book value per Class A share rose about 3% in the quarter to **$522,396** . The increase was driven by earnings growth and gains in Berkshire's $350 billion-plus equity portfolio, led by Apple and Coca-Cola .

Book value is probably higher now than the June 30 figure—perhaps around $535,000—because of equity gains since the quarter ended .

---

### The Human Element: What This Means for Investors

For Berkshire shareholders, the Q2 report offers a mixed picture. Operating profits were decent but not spectacular. Insurance is weakening. The railroad business still trails its chief rival. And the stock has lagged behind the S&P 500 this year, frustrating many shareholders .

But the buyback signal is powerful. Abel and Buffett—arguably the two best capital allocators in corporate history—are putting money to work in their own stock. They're also buying Alphabet, a bet on AI-driven tech growth that Buffett had historically missed.

The message is clear: Abel is not waiting. He's deploying capital, buying stocks, and repurchasing shares. The era of cash hoarding under Buffett's final years is over.

As Sykes put it: "Material repurchases provide confidence for shareholders that some of the best corporate capital allocators see current value" .

---

### Frequently Asked Questions

#### Q: How much did Berkshire buy back in Q2?

A: Berkshire repurchased about **$4.5 billion** of its own stock in the second quarter—its largest quarterly outlay since 2021 . The company also bought back roughly $3.4 billion in July .

#### Q: Why is the buyback a bright spot?

A: Berkshire is more price-sensitive on buybacks than most companies. The fact that Abel and Buffett are buying in size suggests they see meaningful value at current levels—even as the stock has lagged behind the S&P 500 .

#### Q: What did Berkshire buy in the stock market?

A: Berkshire purchased **$23.5 billion** in stocks and sold just $3.7 billion, making it a net buyer for the first time in nearly three years . The largest addition was **$10 billion in Alphabet** (Google's parent company) .

#### Q: Why wasn't operating earnings growth stronger?

A: The 16% headline growth was driven partly by a swing in currency gains and losses related to Japan's yen, which affects Berkshire's yen borrowings. Strip out the swing, and the profit gain was closer to **6%** .

#### Q: How did Berkshire's business divisions perform?

A: Manufacturing, service, and retailing earnings rose to $4.47 billion. BNSF railroad earned $1.56 billion, up 6% . Berkshire Hathaway Energy earned $891 million, up from $702 million. Insurance was weaker, with underwriting earnings falling .

#### Q: Is Berkshire stock a buy?

A: The buyback signal suggests Abel and Buffett believe the stock is reasonably priced . However, the stock has lagged behind the S&P 500 this year and companies in similar industries . As always, consult a financial advisor.

---

### Conclusion: A New Era Begins

Berkshire's Q2 earnings report is a story of a company in transition. The operating results were decent but not spectacular. Insurance is weakening. The railroad business still trails its chief rival. And the stock has underperformed the broader market.

But the buyback signal is the real story. Abel and Buffett are putting billions of dollars to work in their own stock—a powerful vote of confidence that the market is undervaluing Berkshire's collection of businesses. They're also making big bets on Alphabet, a signal that Abel is willing to deploy capital in AI-driven growth .

The era of cash hoarding under Buffett's final years is over. Abel is spending, buying, and repurchasing. For shareholders, that's a bright spot in an otherwise mixed report—and a signal that the best may be yet to come.

---

### Disclaimer

**IMPORTANT:** This article is for informational and educational purposes only and does not constitute financial, investment, or trading advice. The information contained herein is based on publicly available sources and reflects the author's understanding as of the publication date. Market conditions, stock prices, and company performance are subject to rapid change. Past performance is not indicative of future results. You should consult with a qualified financial advisor before making any investment decisions.