Berkshire Hathaway shares are racing higher just one day before the company drops its second-quarter results. Class A stock jumped 3%, closing at $711,900, while Class B stock rose 2% to finish at $494, according to data from Google Finance.
This comes as speculation builds over two major parts of the company’s portfolio: BNSF Railway and Kraft Heinz. Warren Buffett hasn’t said a word, but of course, he always keeps Wall Street guessing.
The company reports earnings on Saturday, and investors are trying to get ahead of anything that might be buried in the numbers. Even though Warren rarely talks about individual holdings in quarterly updates, the market is clearly watching for any sign that BNSF is about to react to a wave of railroad consolidation, or that Kraft Heinz might go through a breakup. Both ideas have been floating around for weeks.
BNSF weighs options as rivals ink massive merger
Industry chatter about BNSF Railway has picked up ever since Union Pacific and Norfolk Southern signed a $72 billion cash-and-stock deal. That combination would create the only transcontinental railroad in the United States. And with that kind of size, everyone else in the space is suddenly on alert.
CSX, another big player, is reportedly working with Goldman Sachs to evaluate a similar move. That puts pressure on BNSF, which Berkshire Hathaway has owned outright since 2010, to figure out whether standing still is even an option anymore.
Cathy Seifert, who covers the company at CFRA Research, said Friday, “They typically don’t announce acquisitions as part of earnings,” but added that BNSF’s next move “is going to be front and center in investors’ minds.” She also said Berkshire doesn’t usually like doing deals when there’s external pressure or bidding wars. “Berkshire historically does not like to do deals in this kind of an environment, where there’s a little bit of pressure and where there’s an expectation that they’re going to do this.”
No one from BNSF or Berkshire has commented, but analysts say Warren might have to consider acquisitions anyway, just to keep pace in an industry that’s consolidating fast.
On the packaged food side, things are just as chaotic. Kraft Heinz, where Warren’s firm owns a 27% stake, is reportedly exploring a breakup to narrow its focus to faster-growing brands. The company was formed in 2015 with help from Warren and 3G Capital, but it hasn’t performed the way anyone hoped.
Rising costs and changing eating habits have hit the business hard. Americans are buying less processed food, and inflation has squeezed household budgets.
Even with a 3.4% rise in Kraft Heinz shares earlier this month, Berkshire Hathaway’s stake is still worth $4.6 billion less than what’s listed in its books. That’s a huge gap.
There are already signs that Berkshire is stepping away. In May, Kraft Heinz said Warren’s firm would no longer have seats on its board. That’s not a detail investors ignored.
Cash stash builds while Warren stays quiet on new bets
One thing Warren isn’t short of is cash. At the end of March, Berkshire Hathaway was sitting on nearly $348 billion, the biggest pile of money the company has ever had. The problem? There’s been no major buy this year. And no one knows whether that will change in Q2.
But analysts like Shields believe Trump’s economic uncertainties could’ve opened a window for investment. “If you moved fast enough after ‘Liberation Day,’ there were opportunities to make acquisitions that have done fairly well since then,” he said. Still, without a headline deal, the assumption is that the cash pile has only grown.
The insurance business is usually the biggest earner for Berkshire Hathaway, but Q2 might show signs of slowing. Seifert said, “A lot of insurers are seeing sort of a stable demand trend, but a weakening in pricing.” She added that growth might be soft this time.
Investors are also watching whether Warren bought back any Berkshire Hathaway shares during the dip. In recent quarters, the firm stayed away from buying back stock. That was widely seen as a sign Warren thought it was overvalued.
But since Warren announced he would step down as CEO by year-end, Class A shares have fallen 12%. That drop might have given the company enough of a reason to step back into the market and buy up shares again.
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