ii view: Berkshire Hathaway earnings flat as economy slows

A basket of businesses with legendary investor Warren Buffett at the top. We assess prospects. 

First-quarter results to 31 March 

• Operating earnings flat year-over-year at $7.04 billion (£5.63 billion)
• Net earnings attributable to shareholders down 53% to $5.46 billion (£4.37 billion)
• Cash of $106.3 billion (£85 billion)

ii round-up:

Warren Buffett-run conglomerate Berkshire Hathaway Inc Class B (NYSE:BRK.B) reported flat first-quarter operating earnings as economic activity slowed and global stock markets reacted to Russia’s invasion of Ukraine. 

Operating earnings, which exclude gains or losses from Berkshire’s investment portfolio, came in at $7.04 (£5.63 billion) in this latest quarter to the end of March. That compares to $7.02 billion (£5.62 billion) this time last year. The measure, Mr Buffett’s preferred assessment of performance, came as a drop in earnings for its insurance underwriting business was countered by a gain for its manufacturing, service and retailing businesses. 

Berkshire shares fell by a little over 1% in the wake of the results, leaving them up by around 6% year-to-date. The S&P 500 index is down by nearly 13% during 2022. Shares for the biggest US company, Apple (NASDAQ:AAPL), are down around 11%. 

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In 2021, Berkshire Hathaway purchased a record $27.1 billion of its own shares following a previous annual record of $24.7 billion in 2020. The Omaha Nebraska headquartered company, which operates over 90 businesses, bought-back a further $3.2 billion of its own stock in this latest quarter. 

Berkshire recently disclosed that it had bought a major share stake in US computer and printer maker HP Inc (NYSE:HPQ). The purchase follows other similar sizeable share acquisitions and raised speculation that Mr Buffett is beginning to find value in areas of the US stock market.

Quarterly profits including investment gains or losses came in at $5.46 billion, down from $11.7 billion in the first quarter of 2021. The period included both climbing energy costs for industry as Russia invaded Ukraine and an upping in interest rate rise expectations as inflation hit decade highs. Buffett talks down the importance of the measure given its reflection of volatile stock market movements. 

ii view:

Led by legendary investor and businessman Warren Buffett, Berkshire Hathaway is tracked and invested in by large and small investors alike. The company, which Buffett has run since 1965, engages in a range of business activities from insurance and reinsurance to utilities, freight rail transportation and manufacturing. 

For investors, elevated inflation and rising costs for businesses generally cannot be ignored. The eventual departure of Buffett from the business may well dampen investor enthusiasm, while the outlook broadly is now clouded by economic uncertainty and heightened geopolitical concerns.  

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On the upside, value buying opportunities are being found, and Berkshire's considerable cash mountain of over $100 billion offers room for further bargain hunting. Investment opportunities, if not full takeovers in recent years, have included Bank of America Corp (NYSE:BAC), Apple, Coca-Cola Co (NYSE:KO), and Snowflake Inc Ordinary Shares - Class A (NYSE:SNOW), while its ongoing share buyback programme continues to offer support. In all, and with distorting central bank action still arguably very much in play on global asset prices, the judgement and experience offered by Buffett’s Berkshire company remains reassuring.   

Positives: 

• Diverse portfolio of industries and businesses
• Company chairman Warren Buffett is regarded by many as a legendary investor and businessman 

Negatives:

• Subject to macro-economic and geopolitical uncertainties
• Management succession risk - Mr Buffett is in his 90’s

The average rating of stock market analysts:

Strong hold