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Berkshire Hathaway Earnings Confirm Warren Buffett’s Bet on U.S. Recovery

NEW YORK (TheStreet) - Berkshire Hathaway (BRK.B - Get Report) reported better-than-forecast second-quarter earnings as sales growth at the Warren Buffett-run conglomerate returned, confirming a strengthening recovery in the U.S. economy.

Berkshire's earnings add proof that a first-quarter slowdown in U.S. economic activity was the result of unseasonably bad weather and not a deteriorating economy. Like the rest of the country, Berkshire rebounded strongly in the second quarter.

Overall, the conglomerate reported $49.8 billion in revenue and $2,643 in earnings per Class A share, beating analyst estimates compiled by Bloomberg on both the top and bottom lines. The company saw operating earnings rise 10% in the second quarter to $4.3 billion.

Analysts expected Berkshire Hathaway to earn $48.86 billion in revenue and earnings per share of $2,482. Berkshire's portfolio of investments and derivatives rose by nearly $2 billion in the second quarter vs. a $622 million gain at this time a year ago.

By Warren Buffett's preferred valuation metric, Berkshire Hathaway performed in line with the S&P 500, a reversal of a trend of under-performance in recent years. Since the beginning of the year, the company's book value per Class A equivalent share has increased by 5.6% to $142,483.

Berkshire is often treated as a good proxy of the health of the U.S. economy and its earnings over the first half of 2014 have proved that maxim.

Gross domestic product slumped 2.1% in the first quarter as a result of bad weather, however, GDP rebounded strongly in the second quarter, rising 4% according to data released by the Commerce Department. The 10% rise in operating earnings Berkshire posted in the second quarter, perhaps, is also indicative of investors' belief that the company has outsized exposure to a U.S. economic recovery.

Of note, revenue at Berkshire's railroad, utilities and energy divisions rose to $9.84 billion, an over 17% rise in the second quarter from year-ago levels. Insurance revenue rose over 11% to $38.1 billion, indicating an improvement in the division's performance.

Overall, performance remained strong in Berkshire's railroad, energy and industrial businesses. Top-line revenue appears to have been positively impacted by the performance of Berkshire's investments, a rebound in insurance sales and acqusitions.

S&P Capital IQ analyst Cathy Seifert said Berkshire's results were buoyed by the firm's economically sensitive business units. Insurance revenues were better than Siefert had forecast, she said by telephone. Nonetheless, Seifert still characterized Berkshire's insurance results as mixed. She highlighted that cash balances at Berkshire grew by $7 billion in the quarter.

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