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Bottom Line: Berkshire Hathaway Still a Buy

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Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) held its annual meeting in Omaha this past Saturday. Of course, Berkshire meetings are always filled with lots of takeaways and insights from Buffett, dubbed the “Oracle of Omaha” for his successful investing endeavors.

Saturday’s meeting also marked the release of the conglomerate’s first-quarter earnings results, which were a bit of a mixed bag. Overall, it was a good earnings report, but the bottom-line numbers may appear to suggest differently, which may have confused some investors as Berkshire stock was pretty volatile on Monday morning. Let’s dive into the results.

Operating earnings spike

With Berkshire Hathaway’s earnings, you have to read between, around, and over the bottom line because it is not always indicative of the company’s performance. That’s because the eighth-largest company in the world by market cap is a conglomerate that holds a $370 billion stock portfolio and owns some 41 companies across a variety of industries, including insurance, retail, construction, transportation, utilities, energy, manufacturing, railroads, and others. Many are household names like GEICO, Dairy Queen and Duracell.

Thus, Berkshire’s stock portfolio often skews its bottom-line results in a given quarter because portfolio earnings are included — even though the losses or gains are unrealized. In other words, the stocks contained in the company’s portfolio haven’t been sold, so they represent just temporary losses or gains.

In the first quarter, the portfolio performed far worse than it did in the first quarter of 2023. Thus, Berkshire Hathaway only had $1.5 billion in unrealized investment gains in Q1, compared to the blowout results reported for the first quarter of 2023, when it generated $27.4 billion in unrealized stock-market gains.

Over time, the Berkshire Hathaway stock portfolio has posted an average annual return of about 20%, so you cannot put too much emphasis on the quarter-to-quarter or year-over-year fluctuations.

What you can measure is the operating earnings from the businesses the conglomerate owns, and those were very good. Berkshire Hathaway saw its operating earnings rise 38% year over year to $11.2 billion on $89.9 billion in revenue (up 5%). The conglomerate notched significant increases on its insurance holdings and energy businesses, which buoyed its overall results. Insurance underwriting was particularly strong with earnings of $2.6 billion, up from $911 million in Q1 2023.

Berkshire Hathaway’s bottom-line results don’t look great, as its net earnings plunged 64% year over year to $12.7 billion, or about $5.88 per share. In reality, it was actually a good quarter for the company, as it beat both revenue and operating-earnings estimates.

However, Berkshire’s stock price was all over the place on Monday, up initially, then in the red, then back up as investors tried to figure out where the company stood at the end of 2023.

Record amount of cash  

In the first quarter, Berkshire Hathaway boosted its cash to a record level of about $189 billion — from $167 billion at the end of the fourth quarter. That reflects its strong earnings and the fact that the company did not make any major investments in the quarter.

“We just haven’t seen anything that makes sense,” Buffett said at the annual meeting, according to Yahoo Finance.

In fact, in the question-and-answer session at the annual meeting, Buffett said the company scaled back its largest position, Apple (NASDAQ:AAPL), and dumped all of its Paramount Global (NASDAQ:PARA) stock.

According to CNBC, Berkshire pared its holdings in Apple by about 13%. As for Paramount, which is in heated merger discussions and has struggled mightily, Buffett took responsibility for the bad investment.

“It was 100% my decision,” Buffett said of Paramount. “I lost money, and I did it all by myself.”

More details on Berkshire Hathaway’s portfolio moves will come out later this month when it releases its 13F filing.

There is always a lot to chew on after Berkshire Hathaway’s annual meeting, and we’ll have more coverage on it. However, as for the quarterly results, don’t fret the bottom line; it is still a good buy.