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Berkshire Hathaway Just Reported Earnings: Here's What You Need to Know

By Matthew Frankel, CFP® - Updated May 1, 2021 at 11:25AM

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Here's what investors should (and shouldn't) focus on in the conglomerate's latest report.

Just like it does every year, Berkshire Hathaway (BRK.A 0.07%) (BRK.B -0.01%) released its first-quarter 2021 earnings results on the morning of its annual meeting. And as per usual, the numbers were quite strong all around and Berkshire still has a massive stockpile of cash.

With that in mind, here's a rundown of the Warren Buffett-led conglomerate's latest results, and the most important takeaways for investors to keep in mind.

Warren Buffett smiling

Image source: Getty Images.

The number not to pay much attention to

The most closely watched part of Berkshire's business is its massive $300 billion stock portfolio, and for good reason. Not only does it make up roughly half of Berkshire's entire market cap, but Buffett has a track record of making excellent investments in it. And to be clear, we won't know about Berkshire's latest stock moves until the company's next 13F filing with the Securities and Exchange Commission later in May.

However, one of the side effects of the stock portfolio is that it renders the company's earnings-per-share (EPS) number rather meaningless. Even Buffett has told investors not to pay much attention to it. With that in mind, Berkshire's headline earnings number $5.09 per class B share (BRK.B) for the quarter, as compared to a $20.44 per-share "loss" in the first quarter of 2020 as the COVID-19 pandemic sent Berkshire's stock investments plunging in value.

Berkshire's massive cash hoard increased

At the end of 2020, Berkshire was sitting on over $138 billion in cash and Treasury bills, a massive stockpile of cash it could put to work, considering that Buffett has said he prefers to have at least $20 billion available at all times.

However, this was a decline from nearly $146 billion at the end of the third quarter of last year. Knowing how much Berkshire's cash balance changed gives us some important clues regarding how active Buffett and his team may have been with stock investing during the quarter, and lets investors know how much is in reserves to pursue large acquisition opportunities, which Buffett has been trying (unsuccessfully) to find for years.

Well, in the first quarter, Berkshire's cash stockpile increased to about $145.4 billion.

Berkshire bought back $6.6 billion in stock

One of the most closely watched parts of Berkshire's strategy right now is the company's buyback program. Unlike many businesses, there's no formal limit on the amount of stock Berkshire can repurchase, as long as it keeps at least $20 billion in reserves and both Buffett and Vice Chairman Charlie Munger both agree that the stock is below its intrinsic value.

In 2020, Berkshire spent $24.7 billion to buy back its stock, including nearly $9 billion in the fourth quarter alone. There's a very solid case to be made that Berkshire Hathaway itself is Buffett's favorite stock to buy in recent quarters.

It looks like this might be changing a bit. Buybacks slowed down significantly in the first quarter, with Buffett and company spending approximately $6.57 billion on buybacks. This could certainly be due to the stock's price increase -- Berkshire's stock price increased by nearly 11% during the first quarter alone, and Berkshire's buybacks (the company breaks it down by monthly repurchases) were most active in January, slowed down in February, and slowed even further in March.

BRK.A Chart

BRK.A data by YCharts

Berkshire's operating businesses

It might seem odd to discuss Berkshire's operating businesses after its buybacks, cash stockpile, and stock portfolio. After all, Berkshire owns more than 60 subsidiary businesses, including GEICO, several major utility companies, BNSF Railway, and many others.

However, the reality is that Berkshire's businesses generally produce solid and predictable results quarter after quarter. And the first quarter is no exception. Berkshire's operating earnings from its businesses (not its investments) was $7.02 billion for the first quarter, up 20% year over year.

The insurance business was especially strong, with underwriting net income of $764 million, more than doubling the $363 million it managed to generate in the first quarter of last year.

What stocks did Warren Buffett and his team buy in the first quarter?

As mentioned, we won't know exactly what stocks Berkshire bought and sold in the first quarter until its regulatory filing in mid-May. But the earnings report provides some valuable clues. For one thing, we know that Berkshire's cash stockpile increased significantly, despite more than $6.5 billion in buybacks, indicating that Berkshire probably wasn't much of a buyer of stocks during the quarter. And we also know that the cost basis (amount Berkshire paid) of the stocks in the portfolio was $108.62 billion at the end of 2020 and was at $106.45 billion at the end of the first quarter. So, it actually appears that Buffett may have been a net seller of stocks during the first quarter.

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