Berkshire Hathaway’s March quarter earnings were overshadowed at the weekend by news of a big sale of Apple shares and a possible significant investment in Canada. Also notable was the absence at the annual meeting of former chair Charlie Munger, who died late last year.
If it had been another quarter, the story would have been, "What's Warren going to do with his money?"—a record $US189 billion in cash (the legendary float), most of which is invested in US Treasury bonds, generating billions of dollars annually in interest. That's up from 2023's $US167.6 billion, possibly boosted by the Apple sale cash.
As usual, there are two results for the company (as there are for all companies under modern accounting standards): the statutory result, which includes fluctuations from Berkshire's share portfolio, fell 64% to $US12.7 billion. But the operating profit surged 39% to $US11.2 billion as the company’s insurance businesses recovered from significant losses a year ago. The 39% gain was led by a 185% year-on-year increase in insurance underwriting earnings to $US2.598 billion from just $US911 million. Geico, the mostly car and property insurer, saw earnings surge 174% to $US1.928 billion from $US703 million a year prior.
The downside of these profits is that insurance premium rises by Geico and other insurers have meant US inflation remains ‘sticky’, and saw the Fed forced to postpone expected rate cuts. Insurance investment income also swelled 32% to more than $US2.5 billion, reflecting the interest income from the float and its huge holdings in US Treasury bonds.
Berkshire’s railroad business reported $US1.14 billion in profit, down slightly from the first quarter of 2023. Its energy division saw earnings nearly double to $US717 million from $US416 million a year prior. Berkshire also bought back $US2.6 billion in shares in the first quarter, up from $US2.2 billion in the fourth quarter of 2023 and well above the $US1.8 billion in the same quarter of 2023. So far this year, Berkshire shares have kept ahead of the S&P 500—Buffett’s long-held performance target. Berkshire shares are up 10.6%, while the S&P 500 is up 8.1%. This outperformance occurred despite an 11% slide in the price of Apple shares in the quarter.
Buffett told the meeting on Saturday that Berkshire Hathaway had sold its entire holding in Paramount at a loss, an investment decision he said was his sole responsibility. "It was 100% my decision, and we've sold it all, and we lost quite a bit of money," Buffett told the meeting on Saturday in Omaha. Berkshire surprised Wall Street when it revealed a 75 million share, $US2.6 billion stake in Paramount in May 2022. Later that year, it increased that stake to more than 91 million shares (which was worth $US1.7 billion at the time), underlining the looming losses for Berkshire. This saw the company become the largest shareholder in the company (or at least its non-voting shares), with Shari Redstone and the Redstone family’s National Amusements controlling a majority of its voting shares. Berkshire had 63.3 million Paramount Global Class B shares as of the end of 2023. They have all gone. The losses were not disclosed, but Buffett did say they were large, even for Berkshire.
