(Bloomberg) — Shares of Berkshire Hathaway Inc. were left out of the stock market rally in the second quarter. Warren Buffett clearly thought the disconnect wasn’t warranted.
The famed investor spent a record $5.1 billion buying back Berkshire’s own stock in the second quarter, more than double the amount he’d ever purchased before. That came as he unloaded almost $13 billion of other companies’ shares, including airline stocks and some financials, in what was his biggest selling quarter in more than a decade.
Buffett has been building up cash this year and took a more cautious tone at his annual meeting in May as the Covid-19 pandemic has slammed the economy without putting a permanent dent in stock-market valuations. But his appetite for his own stock in the second quarter, along with recent signs that he’s been willing to put more money to work, are reasons for some optimism, according to Jim Shanahan, an analyst at Edward Jones.
“The buybacks are a relatively safe way to deploy capital in an uncertain environment,” said Shanahan, who estimated that Berkshire repurchased another $2.4 billion of shares in July. “But it’s clear that that’s not all he’s doing.”
Buffett’s cash pile surged to a record $146.6 billion at the end of June, in part from dumping all of his airline shares in April. He’s been more active lately, striking a deal for natural-gas assets in July and snapping up at least $2 billion of Bank of America Corp. stock in recent weeks through Aug. 4. Overall, Saturday’s disclosures signaled to longtime shareholder Bill Smead that Berkshire is a bit more certain about its standing in this volatile environment.
“He sees that the company itself can get through the worst body blow,” said Smead, the chief investment officer at Smead Capital Management, which oversees $1.5 billion including Berkshire shares. And his buybacks signal that “it got obvious to him how out of favor his own stock is in relation to other investments you could make in other companies.”
Berkshire’s Class A shares, which fell in line with the S&P 500 in the first three months of the year as the pandemic spread in the U.S., fell another 1.7% last quarter while the broader index rallied 20%. Buffett said in early May that repurchases weren’t more compelling than at previous times, but the buybacks in the quarter suggest his thinking shifted.
The company’s stock has rallied in July and August, with Shanahan attributing that to investors being encouraged by Berkshire’s recent deals, but it’s still underperforming in 2020. Berkshire Class A shares were down 7.4% for the year through Friday’s close, compared with the 3.7% gain in the S&P 500.
Berkshire’s operating profit slumped 10% in the second quarter to $5.5 billion. That was driven by a 42% drop in earnings from the conglomerate’s manufacturing, service and retailing businesses.
The company also took $10 billion of impairment charges related to its Precision Castparts unit. Berkshire bought Precision Castparts in 2016 in a transaction valued at $37.2 billion, making it one of Buffett’s biggest deals. Now the maker of jet-engine blades and aircraft structural components is bracing for lean times as Boeing Co. and Airbus SE cut jetliner production and less air travel reduces the need for replacement parts.
The impairment charge “reflects a very ample purchase price combined with some secular challenges,” Cathy Seifert, an analyst at CFRA Research, said in an interview. “The sense that I get from the magnitude of the writedown and the tone of some of the comments related to air travel, and the industry supporting air travel, is that there’s some demand destruction there that could be permanent or semi-permanent.”
The challenges have forced the aerospace-parts maker to undergo “aggressive restructuring,” with the company cutting its workforce by about 10,000 employees during the first half of 2020.
“We believe the effects of the pandemic on commercial airlines and aircraft manufacturers continues to be particularly severe,” Berkshire said in a regulatory filing Saturday. “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.”
Other key takeaways from the results:
Unrealized gains and losses in Berkshire’s massive stock portfolio count toward the bottom line. So the S&P 500’s rally in the second quarter pushed net income to $26.3 billion.Insurance underwriting profit more than doubled to $806 million in the period. That was helped by gains at auto insurer Geico as fewer accidents benefited the business. Berkshire warned that Geico might be hurt in the next three quarters by a program that’s giving drivers a credit on their premiums.Berkshire’s press release is here.
(Updates with analyst and shareholder comments starting in third paragraph.)
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HALIFAX – Ottawa is negotiating a $500-million bailout for Nova Scotia’s privately owned electric utility, saying the money will be used to prevent a big spike in electricity rates.
Federal Natural Resources Minister Jonathan Wilkinson made the announcement today in Halifax, saying Nova Scotia Power Inc. needs the money to cover higher costs resulting from the delayed delivery of electricity from the Muskrat Falls hydroelectric plant in Labrador.
Wilkinson says that without the money, the subsidiary of Emera Inc. would have had to increase rates by 19 per cent over “the short term.”
Nova Scotia Power CEO Peter Gregg says the deal, once approved by the province’s energy regulator, will keep rate increases limited “to be around the rate of inflation,” as costs are spread over a number of years.
The utility helped pay for construction of an underwater transmission link between Newfoundland and Nova Scotia, but the Muskrat Falls project has not been consistent in delivering electricity over the past five years.
Those delays forced Nova Scotia Power to spend more on generating its own electricity.
This report by The Canadian Press was first published Sept. 16, 2024.
TORONTO – Roots Corp. may have built its brand on all things comfy and cosy, but its CEO says activewear is now “really becoming a core part” of the brand.
The category, which at Roots spans leggings, tracksuits, sports bras and bike shorts, has seen such sustained double-digit growth that Meghan Roach plans to make it a key part of the business’ future.
“It’s an area … you will see us continue to expand upon,” she told analysts on a Friday call.
The Toronto-based retailer’s push into activewear has taken shape over many years and included several turns as the official designer and supplier of Team Canada’s Olympic uniform.
But consumers have had plenty of choice when it comes to workout gear and other apparel suited to their sporting needs. On top of the slew of athletic brands like Nike and Adidas, shoppers have also gravitated toward Lululemon Athletica Inc., Alo and Vuori, ramping up competition in the activewear category.
Roach feels Roots’ toehold in the category stems from the fit, feel and following its merchandise has cultivated.
“Our product really resonates with (shoppers) because you can wear it through multiple different use cases and occasions,” she said.
“We’ve been seeing customers come back again and again for some of these core products in our activewear collection.”
Her remarks came the same day as Roots revealed it lost $5.2 million in its latest quarter compared with a loss of $5.3 million in the same quarter last year.
The company said the second-quarter loss amounted to 13 cents per diluted share for the quarter ended Aug. 3, the same as a year earlier.
In presenting the results, Roach reminded analysts that the first half of the year is usually “seasonally small,” representing just 30 per cent of the company’s annual sales.
Sales for the second quarter totalled $47.7 million, down from $49.4 million in the same quarter last year.
The move lower came as direct-to-consumer sales amounted to $36.4 million, down from $37.1 million a year earlier, as comparable sales edged down 0.2 per cent.
The numbers reflect the fact that Roots continued to grapple with inventory challenges in the company’s Cooper fleece line that first cropped up in its previous quarter.
Roots recently began to use artificial intelligence to assist with daily inventory replenishments and said more tools helping with allocation will go live in the next quarter.
Beyond that time period, the company intends to keep exploring AI and renovate more of its stores.
It will also re-evaluate its design ranks.
Roots announced Friday that chief product officer Karuna Scheinfeld has stepped down.
Rather than fill the role, the company plans to hire senior level design talent with international experience in the outdoor and activewear sectors who will take on tasks previously done by the chief product officer.
This report by The Canadian Press was first published Sept. 13, 2024.
VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, are set to resume today as a strike that has stopped most services drags into a second week.
No timeline has been set for the length of the negotiations, but Joe McCann, president of the Amalgamated Transit Union Local 1724, says they are willing to stay there as long as it takes, even if talks drag on all night.
About 600 employees of the door-to-door transit service for people unable to navigate the conventional transit system have been on strike since last Tuesday, pausing service for all but essential medical trips.
Hundreds of drivers rallied outside TransLink’s head office earlier this week, calling for the transportation provider to intervene in the dispute with Transdev, which was contracted to oversee HandyDART service.
Transdev said earlier this week that it will provide a reply to the union’s latest proposal on Thursday.
A statement from the company said it “strongly believes” that their employees deserve fair wages, and that a fair contract “must balance the needs of their employees, clients and taxpayers.”
This report by The Canadian Press was first published Sept. 12, 2024.
