Consistent Operating Earnings Counter Investment Volatility

Berkshire Hathaway, the diversified holding company led by Warren Buffett, released its financial results for the second quarter and first half of 2025. The company reported net earnings attributable to shareholders of $12.37 billion for the second quarter. While this marks a decrease from the $30.35 billion reported in the same quarter last year, the decline is primarily due to investment gains and losses, which the company considers “meaningless in understanding our reported periodic results”. In contrast, the company’s operating earnings continue to show consistency and growth: insurance underwriting earnings were $1.99 billion in the second quarter, and railroad company BNSF’s earnings increased by 19.5% to $1.47 billion. Earnings from the energy companies (BHE) rose by 7.2% to $702 million, while earnings from the manufacturing, service, and retailing segment increased by 6.5% to $3.6 billion. These figures demonstrate the strength of Berkshire’s diversified business model, which is capable of generating stable profitability from its core business operations, independent of market fluctuations.

Significant Investments in Existing Portfolio and Strategic Decisions

Berkshire Hathaway maintains a concentrated investment portfolio in a few large companies. The company’s five largest holdings, which included American Express, Apple, Bank of America, The Coca-Cola Company, and Chevron, represented 67% of the total fair value of its equity securities as of June 30, 2025. Additionally, Berkshire currently owns 28.1% of Occidental Petroleum’s shares, which it accounts for using the equity method. In the second quarter, Berkshire recorded a $5.0 billion impairment loss on its investment in The Kraft Heinz Company, following a decline in the company’s market value and the resignation of Berkshire’s representatives from Kraft Heinz’s board of directors. Despite this, the holding in Occidental Petroleum was not impaired, as the company continues to believe in its value and intends to hold the investment for the long term. Berkshire’s strong cash flow, which amounted to $21 billion from operating activities in the first half of 2025, allows it to continue making strategic investments and expanding its portfolio of wholly-owned companies, such as the two energy companies whose acquisitions were finalized in late 2024.

Challenges and Risks in a Diverse Business Portfolio

Berkshire Hathaway’s operations are not without risks and challenges. The insurance division, for example, was significantly impacted by the Southern California wildfires in the first quarter of 2025, which resulted in an after-tax loss of $850 million. These losses, along with a decline in premiums written and an increase in underwriting expenses, led to a decrease in insurance underwriting earnings in the first half of 2025 compared to the same period in 2024. Similarly, the Berkshire Hathaway Energy (BHE) division is facing significant legal proceedings related to wildfires in California and Oregon that occurred in 2020 and 2022. The total claims filed against PacifiCorp, a BHE subsidiary, amount to approximately $54 billion, excluding punitive damages. While Berkshire has recorded provisions to cover these losses, it acknowledges that “it is reasonably possible PacifiCorp will incur significant additional losses beyond the amounts currently accrued”. Furthermore, the service and retailing division, which showed mixed earnings across its various operations, is grappling with challenges such as slowing customer demand and political tensions affecting international trade and orders.

A Look at the Company’s Balance Sheet and Capital Management

Berkshire’s balance sheet remains strong and stable, with significant liquidity and a robust capital base. Shareholders’ equity attributable to Berkshire stood at $668 billion as of June 30, 2025, an increase of $18.6 billion since the beginning of the year. At the same time, the company continues to maintain a conservative capital management policy, and has made share repurchases only at the discretion of Warren Buffett, when the price is deemed to be below the company’s intrinsic value. There were no share repurchases in the first six months of 2025. The company maintains cash, cash equivalents, and U.S. Treasury Bill holdings of $339.8 billion, and has made it clear it will not repurchase shares if doing so would reduce this reserve below $30 billion. The company’s debt, totaling $127 billion, remains well-managed and reflects the diversity of its financial activities.

Berkshire’s Macroeconomic View and Future Outlook

Berkshire is well aware of the changing economic and political environment and addresses the considerable uncertainty in its reports. The company notes that ongoing macroeconomic and geopolitical events, along with changes in international trade policies and tariffs, may negatively affect its results. Despite this, the company has reiterated that it is unable to reliably predict the ultimate impact of these factors. Nevertheless, its subsidiaries, such as BNSF, continue to make significant capital expenditures, and the investment plans of BHE and BNSF alone forecast expenditures of $8.8 billion through the remainder of 2025. Management remains optimistic about the operational efficiencies in the railroad and energy businesses and is focused on long-term growth through capital investments, despite current market challenges. This perspective, characterized by financial conservatism and focused investments, reflects Berkshire’s unique approach to creating enduring value for its shareholders.