Berkshire earnings come in below expectations

Key Concepts:

• Berkshire Hathaway (BRK.A, BRK.B) Q1 Earnings
• Insurance Underwriting Earnings Decline
• Foreign Exchange Losses (Yen Surge)
• Equity Portfolio Accounting Loss
• Macroeconomic and Geopolitical Impact
• Tariffs
• Top 5 Holdings (AMEX, Apple, BAC, etc.)
• Cash Pile Increase
• Market Volatility (April)
• Share Buybacks
• Price-to-Book Ratio

1. Q1 2024 Earnings Overview:

• Berkshire Hathaway's stock closed at an all-time high yesterday.
• B shares are up nearly 20% this year.
• Q1 earnings showed a bigger drop in operating results than expected.
• A significant drop in insurance underwriting earnings year-over-year was observed.
• The surge in the value of the Japanese yen led to foreign exchange losses (mark-to-market).
• The equity portfolio took a $5 billion accounting loss due to stock declines as of March 31st (year-to-date).
• Overall, earnings came in well below expectations.

2. Factors Affecting Operating Results:

• Berkshire's release stated that periodic operating results may be affected by ongoing macroeconomic and geopolitical events.
• The pace of changes in these events, including international trade policies and tariffs, has accelerated in 2024.
• Tariffs were a primary concern for shareholders writing in with questions for Warren Buffett, Ajit Jain, and Greg Abel.

3. Portfolio and Cash Position:

• Berkshire did not list the value of its five largest holdings as of March 31st, but the stocks remained the same (American Express, Apple, Bank of America, etc.).
• There appeared to be no material change in the amount of these holdings, indicating no significant buying or selling.
• Berkshire's cash pile increased from $334.2 billion at the end of 2023 to $347.7 billion at the end of Q1 2024.
• This increase suggests that Berkshire has not deployed its cash reserves into significant acquisitions or investments.

4. Cash Position Analysis:

• The cash buildup is attributed to incoming dividends, T-bill interest, and other revenue streams.
• The question remains whether the large cash position is a market call (waiting for better opportunities) or simply a lack of compelling, large-scale investment opportunities.
• Market volatility in April (after the close of Q1) raises the possibility that Berkshire may have started deploying capital during that period.

5. Comparative Cash Holdings:

• Berkshire's cash holdings are now greater than the combined cash reserves of Apple, Microsoft, Google, and Amazon.
• While big tech companies are known for their large cash positions, Berkshire's cash hoard is even larger.
• Tech companies use their cash for data center construction and stock buybacks.

6. Share Buybacks:

• Berkshire Hathaway did not buy back any shares in the latest quarter.
• Warren Buffett has specific parameters for share repurchases, including valuation considerations.
• The stock is currently trading at a rich valuation, around 1.8 times book value, which may have discouraged buybacks.

7. Conclusion:

Berkshire Hathaway's Q1 2024 earnings were below expectations, primarily due to declines in insurance underwriting and foreign exchange losses. Macroeconomic and geopolitical factors, particularly tariffs, are significant concerns. The company's cash pile continues to grow, raising questions about future investment strategies. No share buybacks occurred in the quarter, likely due to the stock's high valuation. The market volatility in April may have influenced subsequent investment decisions, but this is not reflected in the Q1 results.