Unrealized Investment Gains Lift Berkshire's Q2 Results

With wide-moat Berkshire Hathaway's BRK.B second-quarter (and first half) results not varying too widely from our expectations, we expect to leave our $342,500 ($228) per Class A (B) share fair value estimate in place. As we continue to uncover more and more tidbits of information related to the impact that the COVID-19 pandemic will likely have on Berkshire's different operating subsidiaries, though, we will make further adjustments to our near-term assumptions, which could alter our fair value estimate.

Second-quarter (first-half) revenue, which includes unrealized and realized gains/losses from Berkshire's investments and derivatives portfolios, increased 31.6% (declined 43.2%) year over year to $96.9 billion ($87.9 billion). Excluding the impact of investment and derivative gains/losses and other adjustments, second-quarter (first-half) operating revenue declined 10.6% (4.9%) to $56.8 billion ($117.9 billion).

Operating earnings, exclusive of the impact of investment and derivative gains/losses but including goodwill and intangible asset impairments (including $9.8 billion attributable to Berkshire's 2016 acquisition of Precision Castparts), decreased 10.2% (2.3%) year over year to $5.5 billion ($11.4 billion) during the June quarter (first half of 2020). When including the impact of the investment and derivative gains/losses, net earnings increased 86.8% (fell 165.6%) to $26.3 billion (negative $23.5 billion).

The company closed out the June quarter with a record $146.6 billion in cash and cash equivalents, up from $137.3 billion at the end of March, having netted around $13 billion from equity sales and buying back around $5 billion worth of Berkshire's common stock during the second quarter (as well as retaining excess cash from its operating subsidiaries). This left Berkshire (by our estimates) with $121 billion in dry powder that could be committed to investments, acquisitions, and share repurchases in the third quarter of 2020.

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