Berkshire Hathaway Q2 2025: A Tale of Two Profits as Operating Strength Underscores Resilience

OMAHA, NE – Berkshire Hathaway Inc. (BRK-A), long synonymous with prudent capital allocation, diversified operations, and the enduring wisdom of Warren Buffett, released its second-quarter 2025 earnings on August 2, 2025. The report was met with a mixed reception from investors and analysts, as a dramatic divergence between headline and core profitability highlighted the company’s dual nature.

While headline net profit plunged 59% to $12.37 billion—a figure largely attributed to a sharp decline in unrealized investment gains and a substantial $3.76 billion write-down on its Kraft Heinz investment—the core operating profit, which Buffett consistently emphasizes as the true measure of performance, demonstrated remarkable stability. This key metric dipped only 4% to $11.16 billion, exceeding Wall Street expectations and underscoring the resilience of Berkshire’s robust business model amidst global economic headwinds.

The company’s financial fortress remains intact. Berkshire concluded the quarter with a staggering cash pile of $344.1 billion, a slight dip from the previous quarter’s record but still a near-historic high. This vast war chest positions the conglomerate for opportunistic moves, even as it braces for potential tariff impacts and prepares for a pivotal leadership transition, with Greg Abel set to succeed Buffett as CEO by year-end.

This comprehensive analysis integrates the latest Q2 2025 earnings data with historical financials, employing the McGrew Framework to evaluate Berkshire’s quantitative valuations, additional metrics, qualitative strengths, and overall investment appeal. As of August 2, 2025, Berkshire’s shares closed at $711,480. This price reflects investor caution regarding the headline profit drop but also optimism surrounding the core stability of its businesses. We will explore how these results fit into the broader narrative of a company that has compounded value for shareholders for decades, while addressing emerging risks and opportunities in a shifting economic landscape.

Q2 2025 Earnings: A Closer Look at Performance and Key Drivers

Berkshire’s Q2 2025 results present a clear picture of steadfast operations tempered by external, non-recurring pressures. Total revenues for the quarter reached $117.51 billion, but the primary focus was on the significant divergence between net and operating earnings. Net earnings fell dramatically from $30.35 billion in Q2 2024, a decline driven by a 90% drop in unrealized gains on equity securities ($6.4 billion versus $65.1 billion last year) and the aforementioned Kraft Heinz impairment. This write-down was triggered by Kraft Heinz’s exploration of strategic transactions, a move that highlights the risks inherent in Berkshire’s equity holdings amid volatile consumer goods markets.

Operating earnings, which intentionally exclude these volatile investment fluctuations, totaled $11.16 billion. This represented a 3.8% decline year-over-year but was notably ahead of consensus estimates. This metric, which Buffett has long championed as the best gauge of intrinsic value growth, benefited from strong performances in key business segments despite headwinds in the insurance sector.

A breakdown of the performance by business segment reveals:

• Insurance Operations: Underwriting earnings decreased 12% to $1.99 billion from $2.26 billion. This segment was impacted by $877 million in catastrophe losses, including those stemming from Southern California wildfires. However, investment income provided a bright spot, edging up 1.4% to $3.37 billion, buoyed by higher interest rates on the company’s $174 billion “float” (which has grown by $3 billion since year-end 2024). GEICO, a crown jewel of the insurance group, posted an impressive 83.5% combined ratio, signaling robust underwriting discipline. Overall, the insurance business remains a powerful cash engine, providing low-cost float for reinvestment.
• BNSF Railroad: This segment saw earnings surge 19% to $1.47 billion, fueled by increased freight volumes and operational efficiencies. Representing about 13% of total operating earnings, BNSF continues to demonstrate resilience in logistics amid broader supply chain recoveries.
• Berkshire Hathaway Energy (BHE): Earnings for BHE were up 7% to $0.70 billion, driven by improved utility performance and strong energy demand. BHE’s regulated business model offers inherent stability, though management noted potential tariff impacts on future costs.
• Manufacturing, Service, and Retailing (MSR): This diverse group of businesses saw earnings rise 6.5% to $3.60 billion. This segment’s broad-based strength in consumer and industrial products helped to mitigate the softness experienced in the insurance operations.

Foreign currency exchange losses of $877 million (versus gains of $446 million last year) further weighed on results, primarily tied to non-U.S. dollar denominated debt. Adjusting for this, analyst calculations suggest operating earnings would have risen 7.9% year-over-year.

The company’s cash and short-term investments dipped slightly to $344.1 billion from $347.8 billion in Q1, but this figure remains near all-time highs, providing ample “dry powder.” A notable observation was the lack of share repurchases in Q2 or the first three weeks of July, even as the company’s shares fell more than 10% from their peaks. This contrasts with the $2.6 billion in buybacks executed in Q1 and may signal Buffett’s view on current valuations or a strategic preservation of capital for larger opportunities.

Year-to-date, operating earnings stand at $20.8 billion (down from $22.8 billion for the same period last year), but the Q2 beat on expectations has buoyed investor sentiment. The reaction on X (formerly Twitter) was emblematic of this duality. One user noted: “Berkshire Hathaway $BRK.A Q2 2025 Earnings EPS: $8,601 (vs. $7,514 expected) Cash: $344.1B… Seems like no major equity moves. Buffett stays the course.” Another highlighted the cash hoard: “Cash: –1.0% QoQ to ~$344.1B.”

These results are set against the backdrop of a pivotal transition: Buffett, at 94, announced that Greg Abel will officially succeed him as CEO at year-end. Abel’s influence is already becoming apparent in a more hands-on approach to capital, which could signal a more disciplined and accelerated deployment of the company’s vast cash pile.

Historical Context: From Textile Mill to Global Powerhouse

Berkshire’s evolution from a struggling textile manufacturer in 1965 (when Buffett took control) to a $1 trillion+ market cap behemoth is a powerful testament to the principles of compounding and diversification. Since its inception, the company has achieved an average annual book value growth of 19.8%, significantly outpacing the S&P 500’s 10.2%. The insurance float, which began at a modest $19 million in 1967, has now ballooned to $174 billion, a low-cost funding source that has enabled transformative acquisitions like BNSF ($44 billion in 2010) and Precision Castparts ($32 billion in 2016).

Recent years reflect this powerful compounding effect. Operating earnings grew from $24.8 billion in 2019 to $47.4 billion in 2024 (pre-2025 adjustments), representing a 15% compound annual growth rate (CAGR). Similarly, revenue expanded from $254 billion to $415.8 billion on a trailing twelve-month (TTM) basis. The company has navigated significant challenges, such as the COVID-19-induced dip in 2020 (a net loss of $49.7 billion from unrealized hits), with subsequent rebounds, culminating in $96.2 billion in net earnings in 2023. The Kraft Heinz stake, acquired in 2015, has been a notable sore spot, culminating in the Q2 write-down, but it represents just 2% of Berkshire’s total equity portfolio.

Comparatively, peers in some of Berkshire’s key industries, such as Chubb (insurance) or Union Pacific (rail), trade at higher multiples (e.g., a P/E ratio of ~15x versus Berkshire’s 12.6x TTM). This valuation discrepancy underscores the “conglomerate discount” that Berkshire often receives despite its superior diversification and financial strength.

Quantitative Valuation: Assessing Intrinsic Worth in a Volatile Market

Valuations remain central to understanding Berkshire’s investment appeal. Using distributable earnings (operating earnings), a conservative, Buffett-Inspired valuation method—which assumes a constant 3% growth for 10 years, 2.5% in perpetuity, and an 8% discount rate—yields an intrinsic value of $639,134 per share, with a 40% margin of safety price at $383,480. This conservative approach assumes a steady growth rate aligned with historical averages.

In contrast, the McGrew Growth method, which factors in the company’s impressive 21.3% 5-year operating earnings CAGR, begins with a high growth rate that gradually declines to 6% by year 10. This method produces a significantly higher intrinsic value of $1,509,952 per share, with a safety price of $905,971. While updated with Q2 data, the base earnings adjusted slightly upward, and the framework holds true, requiring no major recalibration as Q2 beat expectations.

Key assumptions for these models include an 8% discount rate (reflecting Berkshire’s low beta of ~0.6), a 2.5% perpetual growth rate (similar to long-term GDP growth), and a financial services treatment that does not subtract net debt, as restricted cash offsets it. Limitations of this analysis include missing derivative data, periods of negative free cash flow (not applicable in this case), and the use of a 5-year rather than a 3-year history for CAGR calculations. Sources for this data include Yahoo Finance, SEC EDGAR, and the company’s 10-Q report.

The table below summarizes these valuation models:

At its last closing price of $711,480, the stock appears overvalued according to the conservative Buffett-Inspired method but significantly undervalued per the McGrew Growth method. This suggests the stock is a compelling “hold” for conservative investors and a strong “buy” for those who believe in the company’s long-term growth story.

Deep Dive into Additional Quantitative Metrics

A review of Berkshire’s key financial metrics further affirms its exceptional financial health. The trailing 12-month (TTM) Return on Equity (ROE) stands at 12.85% (with a 3-year average of 9.73%), demonstrating strong equity efficiency, although this is below historical peaks due to the drag from the company’s massive cash position. The TTM Return on Invested Capital (ROIC) of 11.96% exceeds its cost of capital, validating the company’s competitive moat. A TTM gross margin of 25.3% and a net margin of 19.58% reflect significant pricing power across its businesses, while a TTM Return on Tangible Assets (ROTA) of 7.63% highlights the returns generated from its physical assets.

The company’s debt ratios are pristine: a Debt-to-Equity (D/E) ratio of 0.19, a debt-to-cash ratio of 0.26, and an ultra-conservative cash ratio of 0.34. These metrics signal a fortress-like balance sheet. Berkshire’s earnings growth rate has been an impressive 21.3% CAGR over the past five years, with revenue growth at 15.2%. Its TTM Free Cash Flow (FCF) yield is 1.09% (with $12.065 billion in FCF on a $1.105 trillion enterprise value), which is low but expected given the capital-intensive nature of its businesses. The TTM operating margin is 25.25%, with a current ratio of 1.45 and an interest coverage ratio of 20.4x.

A CapEx as a percentage of FCF of 156% indicates that the company is heavily reinvesting in its businesses. With a 0% dividend payout ratio, all capital is either reinvested or used for share buybacks. The company’s share count has decreased by an average of 1.5% annually over the last three years, and per-share book value growth has been an 18.5% CAGR over five years. The capital structure is solid, with 20% short-term debt and 80% long-term debt. The Debt-Adjusted ROE (DAROE) stands at 10.74% on a TTM basis (and 8.12% on a 3-year average), further derisking the company’s use of leverage. These metrics, updated with Q2 data, confirm a TTM revenue of $415.8 billion, a net income of $80.9 billion, and a steady FCF. Data for these metrics was sourced from Yahoo Finance, Morningstar, and SEC filings.

Qualitative Strengths: The Unassailable Moat

Berkshire’s competitive moat is legendary, a blend of powerful cost advantages, intangible assets, and high barriers to entry. The insurance float, now at $174 billion, provides negative-cost capital, as evidenced by its 10% annual growth over the last five years. This float has been instrumental in funding more than $100 billion in acquisitions since 2010 without the need for shareholder dilution.

Brand loyalty is a core strength, seen in its consumer brands (including its large stake in Coca-Cola). Switching costs are a major barrier in its rail operations, with BNSF’s vast 45,000-mile network creating a near-monopoly in its service areas. Network effects are also present in its energy grids.

The company’s structure is also a strength. The insurance segment, in particular, requires minimal capital reinvestment (with an asset turnover of 2x+), freeing up more than 80% of its FCF for allocation to other businesses. The evidence is clear: Berkshire generated $30.9 billion in TTM operating cash flow, with minimal capital expenditures in its non-industrial arms.

Industry resilience is another qualitative strength. The demand for insurance is largely inelastic, and its rail and utility businesses are regulated for stability. While cyclical risks like wildfires can impact underwriting, the company’s diversification successfully offsets these pressures, as seen in the Q2 results where a hit to insurance was offset by strong performance elsewhere.

The competitive landscape is generally favorable. BNSF operates in an oligopolistic market against rivals like Union Pacific, where Berkshire holds a volume edge. Its manufacturing businesses operate in fragmented markets, where Berkshire’s scale provides a significant advantage. While weaknesses like regulatory scrutiny in energy and competition from tech in insurance exist, the company’s unparalleled strength in capital allocation (Buffett’s 20%+ CAGR) has historically dominated.

Management Outlook: Transition and Strategic Horizons

The company’s 10-Q filing urges a full review and includes a cautionary note on forward-looking statements. Management has specifically flagged tariff risks, stating they could have “adverse consequences on most, if not all, operating businesses,” potentially raising costs in the imports-heavy MSR segment. The absence of major equity moves in Q2 has intensified speculation about the future deployment of the cash pile.

Greg Abel’s ascension marks a new era for Berkshire. As the former head of Berkshire Hathaway Energy, his “hands-on” and operationally focused management style may lead to an acceleration of new deals while still maintaining Buffett’s core value ethos. The outlook remains positive, with core resilience and float growth positioning the company for 5-10% annual earnings growth, consistent with its long-term historical trends.

Investor and Analyst Sentiment: Mixed but Optimistic on Core

Reactions from the investor community on X (formerly Twitter) mirrored the duality of the earnings report. One user praised the earnings beat: “EPS: $8,601 (vs. $7,514 expected)… Buffett stays the course.” Another highlighted the key figures: “Operating Earnings: –3.8% YoY to $11.2B… Cash: –1.0% QoQ to ~$344.1B.” A detailed post pointed out the lack of buybacks: “No buybacks… cash pile grows to $339.8 billion.” Concerns were also noted, with one user mentioning: “Net earnings per Class B share $5.73 beating estimates; revenue $92.52B… braces for tariff impact.” The overall sentiment, however, remains focused on the operating earnings beat and the company’s underlying financial strength, with the upcoming leadership transition adding a layer of intrigue.

Analysts have echoed this sentiment. Barron’s acknowledged the Kraft Heinz write-down but emphasized the core positivity of the report. The Wall Street Journal focused on the absence of buybacks despite a lower share price. CNBC warned that potential tariffs could become a significant headwind.

Risks, Opportunities, and Long-Term Prospects

Primary risks for Berkshire include potential for large catastrophe losses (e.g., from wildfires), the inflationary impact of new tariffs, and market volatility affecting its $263.7 billion equity portfolio. The uncertainty of the succession plan is also a factor, though Greg Abel’s proven track record mitigates some of this concern.

Opportunities abound, chief among them the chance to deploy the company’s $344 billion cash hoard into undervalued assets or share buybacks if prices dip further. The ongoing energy transition also presents a long-term growth opportunity for BHE through a push into renewables, while the insurance float continues to expand, providing a durable source of capital.

In the long term, Berkshire’s unassailable moat and masterful capital allocation suggest it is well-positioned to deliver 10-15% annual returns for shareholders. As Buffett famously noted, “We own good businesses… time is the friend of the wonderful business.”

In conclusion, Berkshire’s Q2 2025 earnings report reaffirms its fortress-like balance sheet and operational grit. While the stock may appear overvalued by one valuation metric, it is significantly undervalued by another, making it a compelling hold or buy for patient investors focused on compounding value in uncertain times.

Additional Quantitative Results Table: