ii view: Berkshire Hathaway’s cash mountain reaches new peak

First-quarter results to 31 March 

• Operating earnings up 39% to $11.22 billion (£8.9 billion)
• Net earnings attributable to shareholders of $12.7 billion (£10.2 billion), down from earnings of $35.5 billion
• Cash held of $188.9 billion (£151.1 billion) up from $167.6 billion in the previous quarter

ii round-up:

The Warren Buffett headed conglomerate Berkshire Hathaway Inc Class B (NYSE:BRK.B) reported a jump in quarterly operating profit as its cash mountain reached yet another record high. 

Operating profit, excluding gains or losses from its investment portfolio, rose 39% for the first quarter to the end of March, driven higher by a near trebling in insurance underwriting profit.

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Shares in the S&P 500 company rose by 1% in post results US trading having come into this latest news up 11% year-to-date. That’s slightly ahead of a 9% gain for the S&P index itself and better than a near 4% increase for the Dow Jones year-to-date.

Overall profit, including gains or losses from its investments, fell to $12.7 billion from $35.5 billion this time last year, affected by a near 6% decline in iPhone maker Apple Inc (NASDAQ:AAPL)'s share price year-to-date. Apple was one of Berkshire's largest holdings, but Buffett has since disclosed he's sold a significant part of the stake.

Berkshire, which operates over 90 businesses, reported record cash held of $188.9 billion, up from $167.6 billion at the end of the previous quarter. Share buybacks totalling $2.6 billion during the quarter rose from $2.2 billion in the final quarter of 2023. 

A near three-quarters increase in energy company related profits to $717 million helped counter an 8% retreat in BNSF or railway related profits to $1.14 billion. 

The conglomerate’s post results AGM marked its first since the passing of its vice chairman Charlie Monger in November. 

ii view:

Berkshire Hathaway shares trade on the New York stock exchange under the two classes of A and B shares, with the originally established A class shares carrying much higher voting power. Berkshire, which Mr Buffett has run since 1965, engages in a range of business activities including insurance and reinsurance, utilities and energy, and the manufacture of consumer and building related products. 

For investors, the lack of a major acquisition for Berkshire to utilise its cash mountain is likely frustrating many investors. Earnings for its insurance underwriting business can prove volatile given unforeseen natural events such as earthquakes. Costs generally for businesses remain elevated, while the eventual departure of Mr Buffett from the business could potentially dampen investor enthusiasm.

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More favourably, its diversity of businesses regularly leaves gains for one division countering falls for another. The lack of any recent major acquisitions does appear to underline management’s patience in waiting for an appropriate value buying opportunity, while its ongoing share buyback programme continues to offer share price support.

On balance, and given the legendary judgement and experience of Mr Buffett and his team in utilising cash wisely, Berkshire shares look to remain worthy of their place in many long-term focused and diversified portfolios.    

Positives: 

• Diverse portfolio of industries and businesses
• Company chairman Warren Buffett is regarded by many as a legendary investor and businessman 

Negatives:

• Subject to macro-economic and geopolitical uncertainties
• Management succession risk - Mr Buffett is in his 90’s

The average rating of stock market analysts:

Buy