No. of Recommendations: 42
My summary of 1Q report ;-)
Berkshire Hathaway-BRKB reported the company’s net worth during the first quarter of 2024 increased by 1.8%, or $10.2 billion, to $571.5 billion with book value equal to about $397,697 per Class A share as of 3/31/24. Berkshire boasts, by far, the largest shareholders’ equity of any U.S. company.
On a GAAP basis, Berkshire reported net earnings of $12.7 billion for the first quarter of 2024 compared to $35.5 billion in the prior year. Investment gains and losses from changes in the market prices of Berkshire’s substantial equity investments will produce significant volatility in earnings and these investment unrealized “paper” gains or losses in any given period are usually meaningless. Berkshire’s five major equity investment holdings which represent about 75% of total equities held as of 3-31-24, include American Express at $34.5 billion (which charged 21% higher during the first quarter or $6.1 billion); Apple at $135.4 billion (which dropped 22% in value during the quarter, or $38.9 billion, reflecting the 11% drop in the stock price during the quarter and an approximate 13% sale of the position during the quarter); Bank of America at $39.2 billion (which deposited a 13% gain during the quarter or $4.4 billion); Coca-Cola at $24.5 billion (which popped 4% during the quarter or $900 million) and Chevron at $19.4 billion (which spurted 3% higher during the quarter or $600 million in value).
During the first quarter of 2024, Berkshire’s revenues rose 5% to $89.8 billion, aided by the improvement in the insurance operations and the contribution from the Pilot Travel Centers acquisition. In the first quarter, Berkshire’s operating earnings increased 39% to $11.2 billion, primarily led by a turnaround in Berkshire’s insurance businesses.
During the first quarter, the insurance segment generated $2.6 billion from underwriting earnings compared to $911 million in the prior year quarter due to improvements at GEICO and no losses from significant catastrophe events. Insurance investment income increased 32% during the quarter to $2.6 billion, reflecting higher interest income from short-term investments. The float of the insurance operations remained relatively unchanged during the first quarter at about $168 billion.
In the first quarter, Burlington Northern Santa Fe’s revenues declined 4% to $5.6 billion, reflecting 9.9% lower revenue per car/unit, due to lower fuel surcharges and unfavorable business mix, partially offset by higher volumes of 6.6%. Net earnings rolled 8% lower to $1.1 billion for the quarter, reflecting wage inflation and other benefits costs.
Berkshire Hathaway Energy’s revenues dimmed 3% lower during the quarter to $6.3 billion while net earnings charged 72% higher to $717 million. The earnings increase reflected higher earnings from the U.S. regulated utilities, natural gas pipelines and other energy businesses, partly offset by lower earnings from the real estate brokerage businesses in connection with litigation around commission payments to real estate agents. Subsequent to quarter end, Berkshire’s HomeServices agreed to a $250 million settlement to be paid over the next four years. On the utility side, wildfire litigation is ongoing with $7 billion in complaints and demands filed in Oregon and California as of 3-31-24. Subsequent to quarter end, a new complaint by 1,000 individual class members is seeking $5 billion in economic and $25 billion in noneconomic damages related to the wildfires. All the litigation will be challenged as investigations into the cause and origin of each wildfire are complex and ongoing with the litigation expected to take years to resolve.
In the first quarter, Pilot’s revenues traveled 14% lower to $12.5 billion due to lower average commodity prices and a decline in volumes from wholesale fuel and fuel marketing businesses. Pre-tax earnings declined 69% to $70 million due to lower margins on retail fuel sales and higher operating expenses.
Berkshire’s Manufacturing businesses reported first quarter revenues rose 1% to $18.5 billion with operating earnings up 12% to $2.9 billion. The Industrial products’ operating earnings increased 8% to $1.5 billion thanks to improvements at Precision Castparts due in part to higher demand for aerospace products. The Building products’ operating earnings hammered out a 12% gain to $1.0 billion as profit margins expanded due in part to lower raw material and manufacturing costs. The Consumer products’ operating earnings motored 29% higher during the quarter to $355 million, primarily due to the turnaround at Forest River and the apparel and footwear businesses.
Service and Retailing revenues decreased 4% during the quarter to $22.2 billion with pre-tax earnings dropping 20% to $1.1 billion. These results reflected broad-based weakness in several sectors, including at TTI, a distributor of electronic components, aviation services, Berkshire Hathaway Automotive and the home furnishings businesses.
Berkshire’s balance sheet continues to reflect significant liquidity and a very strong capital base of $571.5 billion as of 3/31/24. Excluding railroad, energy and utility investments, Berkshire ended the quarter with $565 billion in investments allocated approximately 59.5% to equities ($335.9 billion), 3.0% to fixed-income investments ($17.2 billion), 32.3% in cash and equivalents to a record $182.3 billion and 5.2% in equity method investments ($29.6 billion), which includes 26.8% ownership of Kraft Heinz and 28.2% ownership of Occidental Petroleum.
Free cash flow increased 24% during the quarter to $6.2 billion due to favorable working capital changes. During the quarter, capital expenditures increased 18% to $4.4 billion, which included $2.9 billion for BNSF and BHE, its railroad and utility and energy units. Berkshire expects capital expenditures for BNSF and BHE to approximate $10.8 billion for the balance of 2024. On January 16, 2024, Berkshire acquired the remaining 20% noncontrolling ownership interest in Pilot for $2.6 billion.
During the first quarter, Berkshire purchased a net $15.6 billion in Treasury Bills and fixed-income investments, paid $2.7 billion to acquire equity securities and received proceeds of $20.0 billion from the sale of stocks, including the sale of approximately 13% of its holding in Apple. The sale proceeds increased Berkshire’s cash holdings which Buffett indicated would exceed $200 billion by the end of the second quarter. The equity sales generated $11.2 billion in after-tax realized gains during the quarter thanks to the highly profitable bite taken out of Apple. Buffett indicated that tax considerations played a part in his decision to trim back Apple as he expects tax rates to increase in the future. Apple is expected to remain Berkshire’s largest equity holding in the future as Buffett noted it was an “even better business” than American Express or Coca-Cola which are “wonderful businesses.”
Berkshire repurchases its shares at prices below Berkshire’s intrinsic value, as conservatively determined by Warren Buffett. During the first quarter, Berkshire repurchased $2.6 billion of its common stock. The most recent repurchases included 424 Class A shares purchased at an average price of approximately $623,206 per share in March 2024.
The shares repurchased during the quarter included $1.0 billion of Berkshire stock repurchased from Ruth Gottesman (the wife of former Berkshire board director, Sandy Gottesman) who gave the $1.0 billion in proceeds to the Albert Einstein College of Medicine to ensure that no student there will ever have to pay tuition. On the same day, Berkshire repurchased an additional $500 million from another family that was using the proceeds for an anonymous charitable gift. As Buffett concluded the annual meeting, he said, “If you are lucky in life, make sure a bunch of other people are lucky, too.” Berkshire Hathaway shareholders have taken that message to heart.
