We attended the Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) annual meeting held on May 4, 2013 in Omaha along with about 40,000 other folks from around the globe who gathered once again for the Woodstock for Capitalists. Warren Buffett, Chairman of Berkshire Hathaway, and Charlie Munger, Vice-Chairman, answered questions from shareholders, analysts and the media. Here are my notes from the meeting via Ingrid Hendershot. See our previous extensive notes here.
Berkshire Hathaway First Quarter Results
Warren Buffett began the meeting with a brief recap of Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B)’s strong first quarter financial results with revenues up 15% and operating earnings up 42% (see our detailed first quarter analysis for Berkshire Hathaway on our website). Book value increased 5.5% from year end to $120,525 per A share. It was a good quarter as all of the businesses did very well. It was a benign quarter for the insurance companies in terms of catastrophe losses. Operating earnings from Berkshire’s other big businesses were quite satisfactory.
In the insurance business, Berkshire Hathaway Reinsurance Group benefited from favorable foreign currency changes and an amendment to a life insurance contract with Swiss Re. The high point was the gain in closure rates and persistency at GEICO with policies in force significantly increasing to 473,910 in the first four months of the year. Buffett is hopeful that GEICO will increase its policies-in-force by one million policies this year. With each GEICO policy adding $1,500 in value to Berkshire, the little gecko’s speedy start to the new year may add more than $1 billion to the value of Berkshire in 2013. Buffett encouraged the shareholders to go to the exhibit hall to get a GEICO quote to see if they could save money. He joked they should go anytime during the meeting, but preferably when Charlie was speaking.
Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B)’s railroad business, Burlington Northern Santa Fe (BNSF), also is doing very well with first quarter revenue up 6% to $5.3 billion and pre-tax earnings chugging 16% higher to $1.3 billion. Car loadings were up 4% in the first 17 weeks of the year compared to just a .4% gain for all of the company’s rail competitors combined. It has helped that oil has been found near BNSF’s railroad tracks. Buffett quipped at the annual meeting, “What better place to find oil?” BNSF will be moving more cargo in the decades ahead.
Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) is now the fifth most valuable company in the country behind Apple Inc. (NASDAQ:AAPL), Exxon Mobil Corporation (NYSE:XOM), Microsoft Corporation (NASDAQ:MSFT) and Google Inc (NASDAQ:GOOG).
Berkshire acquired the remaining 20% of Iscar that Berkshire did not already own for $2.05 billion on April 29, 2013. Buffett said the business is doing terrific.
BOOK VALUE GROWTH
In response to a question about Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B)’s book value growing at a lower rate than the S&P 500 Index over the last several years, Buffett said if the stock market continues to do well in 2013, this will be the first period where Berkshire’s book value growth has fallen short of the S&P 500’s growth. He said, “It won’t be a happy day, but it also won’t discourage us.” Berkshire’s results do better in down years on a relative basis to the S&P and lag during strong up years for the S&P 500. While book value is a reasonable proxy for intrinsic value at Berkshire, there are significant gaps between book value and intrinsic value. For example, if GEICO adds 1 million policyholders this year, it will add $1 billion to Berkshire’s intrinsic value and not a dime to book value. Accounting distortions also create gaps between book value and intrinsic value especially with large acquisitions like Iscar. Over time, Berkshire still needs to increase its book value at a rate better than the S&P 500 or investors would be better off in index funds.