Berkshire Hathaway surges to $22bn first-quarter profit
Warren Buffett’s group bolstered by equity rally and portfolio improvements
Berkshire Hathaway reported a surge in profits in the first three months of the year, as a rebound in the stock market and improvements across the conglomerate’s sprawling businesses bolstered its bottom line.
The company, led by billionaire investor Warren Buffett, said it swung to a net profit of $21.7bn from a loss of $1.1bn the year before, in the three months to the end of March.
The gains were supercharged by a rally in equity prices following the volatile end to 2018, with US stocks — as measured by the benchmark S&P 500 index — posting their strongest start to a year in more than two decades.
Berkshire put $16.1bn of its $21.7bn of profits in the quarter to the rise in the value of its multibillion-dollar stock market and derivative portfolio, which includes stakes in blue-chip companies like Apple, Bank of America and Coca-Cola, as well as the sale of some securities.
This week Mr Buffett disclosed that Berkshire had added ecommerce giant Amazon to its portfolio as it seeks to put its more than $100bn cash pile to work.
Stripping out the gains generated by its stock and derivatives portfolio — which Berkshire has said are “usually meaningless” given the gyrations in financial markets — the company reported operating earnings of $5.6bn, or $3,388 per class A share.
The rise in operating profits from the year before was driven by better results in the company’s unit that includes its BNSF railroad and its energy and utility businesses. Profits from its business underwriting insurance fell 4 per cent from the year before.
The figure was roughly in line with analyst expectations for operating earnings of $5.7bn, or $3,390 per class A share, according to data provider Refinitiv.
The results come hours before Mr Buffett and Charlie Munger, the vice-chairman of Berkshire, take the stage for more than five hours at the company’s annual meeting in downtown Omaha.
Tens of thousands of Berkshire investors have descended on the Midwestern city for the meeting to listen to the two men wax on their investment philosophies and wider world views, as well as to spend the weekend shopping from the dozens of companies that Berkshire has purchased over the past five decades.
Management teams from peanut brittle and chocolates confectionery See’s Candies, the Borsheims jeweller, paint maker Benjamin Moore and railroad BNSF walked the convention centre on Friday introducing themselves to shareholders.
Earlier in the week Berkshire hosted the chief executives of its portfolio companies for a dinner and a presentation on its healthcare joint venture with JPMorgan Chase and Amazon, known as Haven.
Greg Abel and Ajit Jain, who last year were promoted to vice chairmen of the company and are seen as potential successors to Messrs Buffett and Munger, also led their first town hall for the assembled executives.
While the focus in recent years has been on succession, Mr Buffett is likely to take repeated questions on the company’s performance and its struggle to clinch the kind of mega-takeover for which he is known.
The company earlier this week said it would spend $10bn to help finance oil and gas producer Occidental Petroleum’s $55bn bid to purchase rival Anadarko Petroleum. But the deal, while going some way to put a dent in the $100bn-plus of cash and cash like securities on the Berkshire balance sheet, does not exactly snare an elephant for the company: it is not gaining management control.
The Berkshire class A stock price has also lagged the stock market this year, rising 7 per cent to $327,766. The S&P 500 has gained nearly 18 per cent since the end of 2018.
Mr Buffett has lamented his recent inability to find high quality companies to add to the Berkshire portfolio, pinning the blame on high prices in the stock market and well-funded private equity groups which have intensified the fight for such assets. Berkshire’s last major takeover was its $37bn purchase of industrial goods company Precision Castparts in January 2016.
“Prices are sky-high for businesses possessing decent long-term prospects,” he wrote to shareholders earlier this year. “2019 will probably see us again expanding our holdings of marketable equities. We continue, nevertheless, to hope for an elephant-sized acquisition.”
Other recent bets have not panned out. The company was forced to take a near $3bn impairment charge over its stake in Kraft-Heinz in the first quarter, after the company behind Capri Sun and Oscar Mayer hot dogs said it would take a $15bn writedown to reflect the lower profitability prospects of some of its best-known products.
The company said that the operating results did not include figures for its share of the earnings at Kraft Heinz. The company, which counts Berkshire has its largest shareholder, has not yet disclosed its quarterly report to US securities regulators.
Instead Berkshire has ramped up purchases of its own stock. The company bought back $1.3bn of its shares last year and in an interview with the Financial Times last month Mr Buffett said the time may come when Berkshire buys back as much as $100bn of its stock.