Insights Gleaned from Berkshire Hathaway's Q2 2025 Financial Results
Berkshire Hathaway's Second-Quarter Earnings Decline Due to Insurance Underwriting Weakness and Investment Setbacks
Berkshire Hathaway (BRK/A, BRK/B) has reported a 43.7% decrease in second-quarter earnings compared to 2024, primarily due to a decline in stocks and weaker insurance underwriting results.
The insurance underwriting was the primary culprit behind the decline in operating earnings, which fell by 4% for the quarter versus 2024. This reversal from last year's record gains led to a notable drop in underwriting profitability.
Investment gains also fell significantly compared to the previous year. This included a write-down on Berkshire's stake in Kraft Heinz, which substantially hurt net earnings. The company announced an impairment to its investment in Kraft Heinz, taking a pretax impairment loss of around $5.0 billion.
Despite these setbacks, other business areas showed some improvement. Berkshire Hathaway Automotive (BHA), a part of the retailing segment, had 8% higher earnings compared to the second quarter of 2024. Marmon, a part of Berkshire's manufacturing segment, saw a 6.9% increase in pretax earnings. Berkshire's Burlington Northern Santa Fe (BNSF) railroad saw a 19% increase in operating earnings versus the same quarter last year.
However, these gains were insufficient to offset the insurance and investment setbacks. The non-controlled businesses segment of Berkshire Hathaway experienced a 97% decline in operating earnings for the quarter, primarily due to foreign currency exchange rate losses. The BHE, Berkshire's utilities and energy segment, saw a 2.6% decrease in operating earnings over the same quarter in 2024.
In a move that was announced at the end of the annual meeting in May, Warren Buffett plans to step down from the CEO role at the end of the year. Greg Abel will assume the CEO role and have the "final word on operations or capital deployment." Buffett will remain Chairman to provide any needed guidance and intends to retain all his shares in the company.
Berkshire's investment portfolio currently stands at 52% publicly traded stocks and 44% in cash. The company was a net seller of $3 billion in publicly traded stocks in the second quarter, marking the eleventh straight quarter of net sales. Berkshire's float, the cash held by insurance companies before claims are made, is $174 billion, $3 billion higher than on December 31, 2024.
In terms of stock performance, Berkshire's outperformed the S&P 500 in the first quarter, falling by 8.8% versus a total return of +10.9% from the S&P 500. Year-to-date through August 1, Berkshire's price was +4.3%, while the S&P 500 had a total return of +6.9%.
The equity method earnings of Berkshire Hathaway include profits from Kraft Heinz (KHC), Occidental Petroleum (OXY), and Berkadia. No share repurchases have been made over the past year, and per-share operating income decreased by 4% for the quarter.
Berkshire Hathaway remains Occidental Petroleum's largest shareholder, holding a 28.1% stake. The company's strategic investments and diversified business portfolio continue to position it as a significant player in various industries.
Warren Buffett, Berkshire Hathaway's CEO, plans to step down at year-end, with Greg Abel taking over and having the final say on operations or capital deployment. Buffett will remain as Chairman to provide guidance.
One of Berkshire Hathaway's investments, Kraft Heinz, contributed to the decline in second-quarter earnings as the company took an impairment loss of $5.0 billion on its stake in Kraft Heinz.
Berkshire Hathaway's equity method earnings include profits from Kraft Heinz, Occidental Petroleum, and Berkadia. The company's diversified business portfolio, which includes investments in industries like finance, technology, and business (such as Geico, BNSF railroad, and Apple), positions it as a significant player in various sectors, not just in the finance industry.
