Berkshire Hathaway (BRK.A and BRK.B) announced its 2010 2nd Quarter results on Friday evening. While the headline figures show that net income fell vs Q2 2009, this was mainly due to the repricing of derivatives which do not expire until 2018 and beyond – most of which bet that the indexes of the S&P500 and FTSE will be higher several years from now.
Hidden slightly deeper inside the results, you can see that the operating profit (i.e. money made by the business subsidiaries trading, rather than profits on stocks & bonds) jumped to $3.07 billion vs $1.78 billion a year earlier. This was largely due to it being the first entire quarter where the rail road company Burlington Northern Santa Fe had its profits included in Berkshire’s results. BNSF contributed $603 million in profits in the second quarter this year.
Other reasons for the leap in operating profits are the impressive turnaround of NetJets ($348 million loss in the first half of 2009 vs $114.5 million profit in the first 6 months of 2001) as well as excellent performances by Berkshire’s insurance businesses.
While analysts may jump on the lower than expect net income and express concern, investors and shareholders should read the results carefully and understand that Berkshire is still an amazing cash generating machine and that over time the adjustments for derivatives, etc. will almost certainly come back in shareholders’ favour. Long term, Berkshire can put its cash to work buying more businesses and investing in opportunities as they present themselves.
The snowball continues to roll and get larger!