Berkshire Reports Record Operating Profits in Q2’s Soft Landing

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On Saturday, the Omaha based conglomerate, Berkshire Hathaway, reported its highest ever quarterly operating profit. With this massive increase in Q2 operating earnings, Warren Buffet’s cash cow has grown to nearly $150 Bn in operating profit. This unprecedented growth has yielded a $36 Bn net profit for the company.

The growth is due to a number of factors including rising rates and Geico’s increased revenue, which is due to higher average premiums and lower advertising spending. This rally was offset by Clayton Homes, also owned by Berkshire Hathaway, which took a 34% hit due to the current cost of building materials.

Profits also fell at one of Berkshire’s largest businesses, the BNSF railroad, with a 24% decline reflecting lower shipments of consumer goods, price competition from truckers, and higher pay for employees.

Berkshire also appeared to remain wary of high stock prices as U.S. equities extended their rally.

During the second quarter it sold $8 Bn more stocks than it bought and repurchased less of its own stock, and it ended June with a near-record $147.4 Bn of cash, an overall 38% increase in earnings.

Essentially, here, the earnings impact of higher interest rates on investment income is offsetting the soft landing caused by those same rates and it’s clear that recession is on the horizon.

A soft landing, in economics, is a cyclical slowdown in economic growth that avoids recession, or trough. It’s the goal of a central bank when it seeks to raise interest rates just enough to mitigate high inflation, without causing a severe downturn.

Buffett’s 5.8% stake in Apple (AAPL) continues to be the backbone of Berkshire’s equity portfolio. Apple has been a leader of this year’s market rally, surging 50% in the first half of the year. That’s added $26.6 Bn to Buffett’s stake, which at the end of the quarter totaled $177.6 Bn and made up 50% of Berkshire’s equity investments.