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3 Things to Watch When Berkshire Hathaway Reports Earnings

By Matthew Frankel, CFP® – Updated May 1, 2019 at 12:48PM

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We're about to learn some important information about the Warren Buffett-led conglomerate.

Berkshire Hathaway (BRK.A -0.06%) (BRK.B -0.95%) is set to report its first-quarter earnings, and in typical Warren Buffett style, the report will be released on Saturday. Buffett does this to give investors and analysts time to digest the numbers while the market is closed, and this quarter's earnings report coincides with the company's widely followed annual meeting.

The company's first-quarter earnings report is often overshadowed by the meeting, but you'll want to pay attention to a few things.

Warren Buffett speaking to media.

Image source: The Motley Fool.

How much cash does Berkshire have?

If you're expecting to find out what stocks Berkshire bought or sold, you're probably going to be disappointed. Berkshire's regulatory filing detailing its stock portfolio at the end of the first quarter isn't due out until May 15. Buffett is generally tight-lipped about Berkshire's stock portfolio activity until he has to make the information public.

However, we will find out how much cash and equivalents Berkshire is holding, and simple math can tell us about how much money (net) the company may have used to buy stocks.

At the end of 2018, Berkshire had about $112 billion in cash. By adding the company's first-quarter profits to this number and comparing it with the cash on hand at the quarter's end, we can tell how much cash Berkshire was able to put to work in the first quarter. And since no major acquisitions were announced, it's a safe bet that any cash used was deployed in stocks.

Buybacks during the first quarter

Speaking of stocks, there are two categories of stock purchases Berkshire can make. There are the stocks Berkshire buys for its own stock portfolio, and it can also buy back its own stock, which has been a big focal point for investors since the company modified its buyback plan in mid-2018.

To put it mildly, investors were largely disappointed with Berkshire's buyback rate in the fourth quarter. Investors are anxious to see Berkshire put some of its cash to work, so if we find out that Berkshire spent billions on buybacks in the first quarter, it could be well-received by the market.

Woodstock for capitalists

It's also important to note that Berkshire's earnings release will take place during the company's annual meeting -- which is commonly referred to as "Woodstock for capitalists."

To be perfectly clear, the meeting is a big event, and the earnings report itself generally receives far less attention. Specifically, the multi-hour Q&A session with Warren Buffett and Vice Chairman Charlie Munger is what most Berkshire followers will be devoting the bulk of their attention to.

And while we have no idea what will be discussed (nor does Buffett), we know it will be interesting. So while it's technically not a part of the earnings report itself, Berkshire's shareholder meeting is definitely important.

One thing not to pay attention to

It may sound odd, but when Berkshire reports its earnings on Saturday, one thing you shouldn't pay attention to is the company's earnings per share, or EPS. Warren Buffett himself called this figure meaningless after a recent accounting change.

Specifically, the earnings number you see includes the unrealized gains from Berkshire Hathaway's $210 billion stock portfolio. In other words, if the value of Berkshire's stocks increases by $10 billion, this will be reflected in the company's quarterly earnings -- even though Berkshire doesn't actually get the money unless the stocks are sold. My colleague Dan Caplinger wrote an excellent explanation of how this works after Berkshire's year-end 2018 earnings were reported.

The S&P 500 index increased by 13% during the first quarter, and some of Berkshire's biggest stock positions did even better. Top holding Apple rose by more than 20%, and American Express popped by 15%, to name just a couple of the larger examples.

The point is that I'm expecting Berkshire to report a big earnings figure. However, because a large portion of it will likely be reflective of unrealized gains in the stock portfolio, take it with a big grain of salt.

Matthew Frankel, CFP owns shares of Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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