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Warren Buffett's company reported less than half as much profit in
the second quarter as it took a $3.76 billion writedown on the
value of its stake in Kraft Heinz, as that iconic food producer
considers largely undoing the merger that Berkshire Hathaway helped
bankroll.

Berkshire said it earned $12.37 billion, or $8,601 per Class A
share, during the quarter. That's down from $30.248 billion, or
$21,122 per Class A share, a year ago, because it recorded a much
smaller paper investment gain this year.

Berkshire's earnings can swing wildly from quarter to quarter
because it must record the current value of its massive investment
portfolio, even though it doesn't sell most of the stocks. That's
why Buffett has long recommended that investors pay more attention
to Berkshire's operating earnings, which exclude those investment
gains. Although last year Berkshire did surprised shareholders by
selling off a huge chunk of its Apple stake, which inflated the
investment gains then.

By that measure, Berkshire's operating earnings were only down
slightly at $11.16 billion, or $7,759.58 per Class A share. That
compares with $11.598 billion, or $8,072.16 per Class A share, a
year ago. Most of Berkshire's myriad assortment of companies —
major insurers like Geico, BNSF railroad, a group of utilities and
a collection of manufacturing and retail businesses — generally
performed well despite the uncertainty about the economy and
President Trump's tariffs.

The four analysts surveyed by FactSet Research expected Berkshire
to report earnings per Class A share of $7,508.10, so the Omaha,
Nebraska-based conglomerate's results were ahead of that.

Berkshire owns more than 27% of Kraft Heinz' stock and, for years,
it has had representatives on the company's board. Buffett has said
previously that he believes the company's iconic brands will do
well over time, but in hindsight, he overpaid for the investment
and underestimated the challenges branded foods face from retailers
and the growth of private label products.

This spring, Berkshire's representatives resigned from the Kraft
Heinz board shortly before the company announced it is exploring
strategic options that may include spinning off a large part of its
portfolio of brands.

Over the years since Berkshire helped Kraft buy Heinz in 2015, the
company has been hurt by changing consumer tastes and a shift
toward healthier options than Kraft's core collection of processed
foods.

Buffett's is still sitting on a massive pile of $344.1 billion in
cash, although the company's reserves dipped slightly from the
$347.7 billion cash it was holding at the end of the first quarter.
Buffett told shareholders in May he just isn't finding any
attractive deals for companies he understands.

Buffett surprised shareholders at the annual meeting when he
announced that he plans to give up the CEO title at the end of the
year and hand over operations to Vice Chairman Greg Abel, but
Buffett will remain Chairman.

Berkshire shareholders might be disappointed that the company
didn't repurchase any of its shares this quarter, even though the
price has fallen more than 12% since just before Buffett announced
his retirement.

Many investors are watching Berkshire's BNSF closely after rival
Union Pacific announced a plan to buy Norfolk Southern earlier this
week to create the nation's first transcontinental railroad. The
speculation is that BNSF needs to pursue a merger with Eastern Rail
CSX to be able to compete.

But CFRA Research analyst Cathy Seifert said it isn't Buffett's
style to jump into a deal just because the market thinks he should.
Over the decades, he has built Berkshire by finding strong
companies selling for less than they are worth. CSX is trading near
its 52-week high at $35.01 amid all the deal speculation.

"He wants to do it because he found an undervalued franchise -- not
because the market says you need to do a deal," Seifert said. "I
think one of the reasons why that cash hasn't been deployed is that
valuations run through the Berkshire M-and-A model tend to be too
rich. But if there's a logical case to be made they'll accept it."

And BNSF appears to be doing fine right now on its own. The
railroad recorded a 19% jump in its operating profit this quarter
at $1.47 billion as it cut costs and delivered about 1% more
shipments.

https://www.cbsnews.com/news/warren-buffett-berkshire-hathaway- profit-kraft-heinz-investment/

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