Buffett Slows Buybacks, Sells Stocks With Market at Highs

Warren Buffett slowed his roll.

Despite having more than $144 billion of funds at his disposal, the Berkshire Hathaway Inc. chief executive officer ended up taking a step back with his capital deployment during the second quarter.

He repurchased just $6 billion of Berkshire stock, the lowest amount of buybacks since the middle of 2020, and was a net seller of other stocks for the third quarter in a row, according to the conglomerate's second-quarter earnings released Saturday.

Buffett's been faced with a high-class problem in recent years: Too much cash, and too few opportunities.

He's been under pressure to do a large deal to help supercharge the company's growth, but has come up short with well-priced and attractive options, leading Berkshire to spend even more funds buying back its stock.

But now, he's in more of a bind. Berkshire stock, already a challenge because of its lack of liquidity, has rallied in recent months and the broader stock market has also become more pricey with the S&P 500 Index climbing to new highs.

"They're kind of between a rock and a hard place," Cathy Seifert, an analyst at CFRA Research, said in a phone interview. "Against that backdrop, I think the level of buybacks was prudent and appropriate."

Still, for an executive who previously shunned buybacks in favor of other ways of deploying capital, Buffett's $6 billion of repurchases in the second quarter ranks as the fourth-biggest quarter since Berkshire began buying back more stock in 2018.

'Housekeeping'

Berkshire sold just $1.1 billion of other stocks during the period, on a net basis, the lowest amount of net sales in the past three quarters. Those sales appear to have largely come from a decrease in its group of commercial, industrial and other stocks, according to a regulatory filing Saturday.

Berkshire is set to report its specific stock changes in a filing later this month. Berkshire shareholder Tom Russo deemed the move as smart given the overall level of the stock market.

"It's housekeeping," Russo, who oversees $10 billion including investments in Berkshire shares at Gardner Russo & Quinn LLC, said in a phone interview. "He's been willing to do that a lot more. He came in and out of airlines, he's come in and out of other holdings."

In the quarterly report, Buffett, who will turn 91 later this month, gave no indications on how he was planning to put his cash pile to work. He also made no mention of any succession plans, after saying in May that Greg Abel was the leading candidate to succeed the chief executive officer.

Meanwhile, the conglomerate kept chugging along, helped in part by a U.S. economy that's been climbing back from the pandemic's initial lows last year.

Berkshire profit jumped about 21% to $6.7 billion during the period, driven by gains at its manufacturers, service companies and retailers. That group of businesses reported its second-highest quarterly profit in data going back to the middle of 2009.

Berkshire's railroad, BNSF, reported a record quarterly profit since Berkshire acquired the business. Earnings of $1.5 billion were helped by increased volumes and better productivity, the company said.

Still, the conglomerate wasn't immune to the effects of inflation. Berkshire was confronted with higher costs for some materials hitting businesses such as its operations that deal with home building.

Berkshire also felt some pain from higher losses at its auto insurer, Geico. Drivers returning to the road as the U.S. opened up in recent months led to more frequent wrecks, causing underwriting profit at Geico to slump nearly 70% during the second quarter.

At another unit, it had to shell out $160 million to help contain and respond to a fire at one of chemical maker Lubrizol's facilities in Rockton, Illinois in June, it said.

Berkshire Class A stock was up 8.5% during the second quarter, following a nearly 11% gain in the first three months of the year.

(Photographer: Andrew Harrer/Bloomberg)