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Berkshire’s operating profit rose 12.6%. The company pared its Chevron holdings.




Berkshire Hathaway
‘s

operating profit after tax rose 12.6% to $8.1 billion in the first quarter due to higher investment income and increased insurance profit.

Berkshire Hathaway (ticker: BRK.A, BRK.B) bought back $4.4 billion in shares in the period, up from $2.6 billion in the fourth quarter, but below its quarterly pace of $6 billion to $7 billion in 2020 and 2021.

Berkshire’s operating income, which excludes changes in the value of the company’s vast investment portfolio, rose 14% to $5,537 per Class A share, Barron’s estimate, above the FactSet consensus of $5,371.

There was a greater increase in Berkshire̵[ads1]7;s operating profit per share during the first quarter than in the absolute level of operating profit due to the benefit of the company’s buyback program, which reduced outstanding shares.

Total earnings in the first quarter rose to $35.5 billion from $5.6 billion in the first quarter of 2022, reflecting a large increase in the value of the company’s equity portfolio. Apple ( AAPL ), whose shares rose more than 30% during the period, dominates the portfolio, accounting for about 45% of it.

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Berkshire appears to have reduced its stake in Chevron ( CVX ) by 20% to 132 million shares in the first quarter based on information in its 10-Q report.

Berkshire had $21.6 billion in Chevron as of March 31 based on information in its 10-Q, down from $30 billion at the end of the year when its stake was about 167 million shares.

Based on Chevron’s share price of $163.16 on March 31, that would mean a Berkshire holding of about 132 million shares in the energy giant.

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Berkshire had after-tax realized gains on the sale of investments of $1.7 billion in the first quarter, which could have reflected gains on the Chevron sale.

Buffett’s appetite for stocks was greatly reduced in the first quarter when Berkshire sold $13.3 billion worth of stock, including an estimated $6 billion in Chevron and bought just $2.9 billion. It was a net seller of more than $10 billion in shares.

This compares to a buying frequency in the first quarter of 2022 when Berkshire was a net buyer of about $41 billion of stocks including Chevron, Occidental Petroleum ( OXY ), Paramount Global ( PARA ) and HP ( HPQ ).

Berkshire’s stake in Apple appeared to be unchanged in the first quarter at about 915.7 million shares worth about $159 billion based on Apple’s closing price of $173.57 on Friday.

Paper gains in Berkshire’s stock portfolio totaled $23.4 billion in the first quarter, compared with a loss of nearly $1 billion in the same period last year.

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CEO Warren Buffett urges investors to focus on a company’s operating results excluding paper gains or losses on its investment portfolio as the best way to measure financial performance. Paper gains or losses depend on stock market levels and are not indicative of Berkshire’s underlying earnings power.

Berkshire’s book value, or equity, rose 7% in the first quarter to $347,800 per Class A share, Barron’s estimates based on information in 10-Q issued in connection with results.

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Berkshire shares now trade for about 1.4 times book value as of March 31, in line with the average price-to-book ratio of recent years.

Berkshire is still sitting on a large amount of cash and cash equivalents that totaled just over $130 billion as of March 31, up from nearly $129 billion at the end of 2022.

The first-quarter earnings gain was driven by a 68% jump in insurance investment income to $2 billion after tax, largely reflecting the sharp rise in short-term interest rates.

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Buffett wisely kept Berkshire’s cash parked in T-bills and other short-term instruments instead of buying long-term bonds, and the company now benefits from 5% Treasury yields, up from below 1% at the start of 2022.

Berkshire’s insurance business posted an underwriting profit of $911 million in the first quarter, up from $167 million in the first period of 2022.

This largely reflected a swing to an underwriting profit of $703 million at Geico, the company’s auto insurer, compared with a loss of $178 million in the first quarter of 2022.

Berkshire said in its 2022 10-K report that it expected Geico to post an underwriting profit this year. That scenario is playing out and is likely to cheer Berkshire investors who have been waiting for a ride in that business. Geico is led by Todd Combs, who serves as Berkshire’s stock manager.

After-tax earnings at Burlington Northern Santa Fe, Berkshire’s largest single operating unit, fell 9% in the first quarter to $1.2 billion. There was also a drop in earnings at Berkshire Hathaway Energy, the company’s utilities business, to $416 million from $775 million in the first quarter of 2022.

Barron’s estimates that Berkshire bought back about $160 million in shares from the end of the first quarter through April 25, the date of the 10-Q report.

Berkshire’s asset base, the largest of any U.S. company, reached nearly $1 trillion in the first quarter, ending the period at $997 billion, up from $948 billion at the end of 2022.

The situation at Geico is remarkable. The auto insurer saw a 2% drop in premium income in the first quarter to $10 billion. That reflected a 15.2% jump in premiums per policy, offset by a 13% drop, or 2.4 million policies in force. Geico has lost market share to archrival Progressive ( PGR ), which, like Geico, actively sells auto policies directly to consumers.

Geico had an underwriting profit margin of 7% in the first quarter, compared with an underwriting loss of 2% in the same period last year.

Berkshire said Geico “significantly reduced advertising during this period, which contributed to the reduction in current guidelines.”

The first-quarter results are the first since Berkshire more than doubled its stake in Pilot Travel Centers, the truck stop operator, to 80% in late January. Over the next two months, Pilot earned $83 million after tax on $9.5 billion in revenue, reflecting the low margins in that business.

Berkshire paid about $8 billion for the additional 41.4% stake, valuing the company at about $20 billion.

Berkshire said the decline in profits at Burlington Northern Santa Fe was “attributed to lower total freight volume and higher fuel and other operating costs.”

“Berkshire Hathaway Energy’s after-tax income fell 46.3% in the first quarter of 2023 compared to 2022. The decline reflected lower earnings from US regulated energy companies, other energy companies and real estate businesses,” the company said. Berkshire operates one of the largest real estate brokerage firms in the country.

Berkshire’s Class A stock ended Friday at $491,840, up 0.5%, while its Class B stock ended at $323.88, up 1.2%.

Write to Andrew Bary at andrew.bary@barrons.com



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