Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%) is hosting its much-anticipated annual meeting this weekend, and as usual, this coincides with the company's first-quarter earnings release. With that in mind, here's a rundown of some of the key takeaways for investors and what to watch going forward.
Berkshire's operating businesses performed well
As Chairman and CEO Warren Buffett has pointed out many times, Berkshire's bottom-line earnings aren't a great indicator of how well the business is performing. Because Berkshire has so much invested in publicly traded stocks, and accounting rules require unrealized gains and losses to be included in earnings, the bottom-line earnings per share (EPS) number doesn't accurately convey how much money the company truly earned.
If we back out the company's investment gains and losses, we see that Berkshire's businesses are performing quite well, with earnings from its operating businesses growing by 12.6% year over year. The bulk of the gain can be attributed to Berkshire's insurance business, with underwriting income rising sharply year over year, and the rising-rate environment causing the insurance business's investment income to rise by 68% compared with the first quarter of 2022.
Berkshire's cash hoard continues to grow
At the end of the first quarter, Berkshire had a total of $130.6 billion in cash and short-term investments on its balance sheet. Since the interest rates paid by short-term Treasuries have risen significantly over the past year or so, it shouldn't be much of a surprise that about 80% of it is in that form. But it's important to realize that these are highly liquid securities, and can essentially be considered as cash when it comes to Berkshire's ability to make acquisitions, investments, and buybacks.
This is a slight increase from $128.7 billion at the end of the year. However, it's also worth noting that Buffett said at the annual meeting that the cash hoard grew even further in April.
A big quarter for buybacks
During the first quarter, and especially in March (presumably when the banking crisis drove the entire market lower), Berkshire was highly active when it came to share buybacks. In the three-month period, Berkshire purchased a total of 5,103 Class A shares and about 6.7 million Class B shares. According to the average share prices paid, Berkshire spent about $4.4 billion on repurchases during the quarter -- a rather aggressive pace.
For context, this is significantly higher than the $2.6 billion Berkshire spent on buybacks in the fourth quarter. However, it's worth noting that this is below the buyback cadence of 2020 and 2021, when the company regularly exceeded $6 billion in quarterly buyback spending.
What stocks did Buffett buy and sell?
Finally, one of the most important things to realize about Berkshire's earnings is that there is a lot that shareholders don't know from the quarterly report itself. Specifically, Berkshire's stock portfolio makes up roughly half of its market cap, and with a few exceptions, we don't know exactly what stocks Berkshire bought and sold. That information will be revealed in Berkshire's required 13-F filing, which will be submitted to the SEC toward the middle of this month.
Having said that, we do know some of what Berkshire did with its stock portfolio. We know Berkshire sold a significant amount of Chevron stock, as Berkshire reports the fair value of its top investments. And we know that Berkshire made about $1.9 billion in net sales in "banks, insurance, and finance" stocks, as the company reports its overall cost basis by category in its quarterly report.
The bottom line
The first quarter appears to have been a solid one for Berkshire, with strong results from its operating businesses. Berkshire apparently thinks its stock is a compelling value right now, and with over $130 billion in investable capital, the company is in a great position to take advantage of any opportunities that arise due to the turbulent economic climate.
