Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) reported first-quarter results on Saturday, and there’s still a lot to unpack. In addition to key revenue and profit numbers, investors always pay attention to Berkshire’s cash balance, buyback activity, and operating income from its subsidiaries.
With that in mind, here is an overview of the key numbers, a key investment move that was announced and the important information we received not already knows.
The headlines (that don’t mean much)
Warren Buffett himself has warned investors not to pay too much attention to the company’s net income (earnings per share, or EPS), as it includes unrealized investment gains and losses from Berkshire’s huge stock portfolio. This is particularly true for the first quarter excellent The first quarter of 2023 resulted in a 64% EPS decline – although Berkshire’s business performed quite well, as we’ll see in the next section.
Berkshire’s revenue rose 5%, and it’s worth noting that both its top and bottom lines came in well above analyst expectations.
The operating result paints a better picture
Berkshire’s operating results tell us how the company’s subsidiaries are performing, and they look great. Overall, Berkshire’s operating profits increased 39% year-over-year.
Much of this strong performance was driven by the insurance business. Underwriting income nearly tripled year-on-year and investment income increased 32%, largely due to the rising interest rate environment over the past year. Berkshire Hathaway Energy’s operating income increased 72% year over year. The only notable decline was an 8% year-over-year decline in BNSF Railroad’s operating income, but the rest of Berkshire’s business more than made up for that.
Is Buffett mad at Apple?
One of the most important things investors should know about Berkshire Hathaway’s quarterly reports is what is not revealed.
Specifically, while Berkshire reports the cost basis of its massive stock portfolio quarter to quarter, we generally don’t know which stocks Berkshire bought or sold (with a few exceptions) until its 13-F is filed with the Securities and Exchange Commission. This quarter’s filing is due May 15, so we’ll get an updated overview of Berkshire’s portfolio as of March 31.
However, Berkshire reports the market value of its largest stock positions at the end of the quarter. As a result, Berkshire appears to have dumped around 13% of its massive volume Apple (NASDAQ:AAPL) Investments in the first quarter. This would certainly explain the rapid growth in cash holdings, as would the recognized Investment gains of $11.2 billion, Berkshire mentioned in its earnings release.
Buybacks increased in the first quarter
Berkshire’s buyback activity is always of interest to shareholders because it provides insight into whether Buffett thinks the company’s shares are attractive. Although a price below intrinsic value is a prerequisite for buybacks to take place at all, the pace of buybacks has changed significantly in recent years.
The first quarter earnings report shows that Berkshire spent $2.6 billion on buybacks, including both Class A and Class B shares.
By comparison, Berkshire repurchased $2.2 billion worth of shares in the fourth quarter of 2023 and spent $9.2 billion in all of last year. So the first quarter represents a certain acceleration.
Berkshire’s cash holdings hit a new record
At the end of 2023, Berkshire’s cash holdings rose to an all-time high of $167.6 billion. Put simply, Buffett has had a hard time identifying attractive acquisition opportunities in recent years, and with short-term Treasury bonds yielding about 5% on Berkshire’s idle cash, Buffett is in no rush to pull the trigger.
To say that Berkshire’s cash pile grew in the first quarter would be an understatement. Including cash, equivalents and short-term Treasury bonds, Berkshire now has a balance sheet worth a staggering $189 billion.
Finally, the earnings report was released on the morning of Berkshire’s widely watched annual meeting in Omaha, Nebraska. The meeting includes hours of questions and answers with Warren Buffett and the heads of Berkshire’s insurance and non-insurance businesses, so some new information (and investing knowledge) is likely to be shared throughout the day. We may even find out why Buffett sold a significant amount of Apple. We’ll definitely keep you updated!
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Matt Frankel holds positions at Berkshire Hathaway. The Motley Fool holds positions in and recommends Apple and Berkshire Hathaway. The Motley Fool has a disclosure policy.
Berkshire Hathaway cuts its Apple investment, has $189 billion in cash was originally published by The Motley Fool