Berkshire cash hoard scores another record as earnings gain

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(Bloomberg) –Berkshire Hathaway Inc.’s cash pile hit yet another record as billionaire investor Warren Buffett confronted a dearth of big-ticket deals. Operating earnings also rose, buoyed by his collection of insurance businesses. 

The firm’s hoard increased to $189 billion at the end of the first quarter, topping the record it set at year-end. The company also reported first-quarter operating earnings of $11.2 billion, versus $8.07 billion for the same period a year earlier.

Buffett, 93, has long decried a lack of meaningful deals that he said would give the firm a shot at “eye-popping” results. Even as the company ramped up acquisitions in recent years, including an $11.6 billion deal to buy Alleghany Corp. and its purchase of shares in Occidental Petroleum Corp., Berkshire has struggled to find sizable deals. That’s left Buffett with more cash — what he called an unrivaled mountain of capital — than he and his investing deputies could quickly deploy.

As Berkshire’s annual meeting kicked off in Omaha on Saturday, Buffett said that “it’s a fair assumption” that its cash pile will hit $200 billion at end of this quarter with few opportunities for needle-moving acquisitions on the horizon. 

“We’d love to spend it, but we won’t spend it unless we think we’re doing something that has very little risk and can make us a lot of money,” he told the crowd of thousands. The company hopes for an “occasional big opportunity,” he added, later noting that it’s looking at an investment in Canada. 

Still, having such a vast sum of cash in an increasingly “complicated and intertwined” world where more can go wrong can allow the firm to step in when opportunities present themselves, Buffett said. Berkshire wants to be ready to act when that happens, he said.

Apple Selling

The company sold some of its Apple Inc. shares in the quarter, reporting a $135.4 billion stake at the end of March, down from $174.3 billion at the end of the year. Apple has been hit by a drumbeat of negative news, including a $2 billion antitrust fine, slumping sales in China and the scrapping of a decade-long car project. 

Despite the sale, Buffett praised Apple, saying it’s an “even better” business than two others it owns shares in — American Express and Coca-Cola. Apple will likely remain its top holding by the year-end, Buffett said. Tim Cook, Apple’s chief executive officer, was in the audience.

Berkshire also sold its position in Paramount Global at a loss, Buffett said, adding that he was responsible for the investment. The company has faced challenges as viewers shifted from traditional TV to online offerings and is currently the subject of takeover talks. 

In the absence of deals, Berkshire has turned to buying back its own shares. It spent about $2.6 billion doing that in the first quarter, it said in its earnings statement Saturday. 

Still, Berkshire’s giant cash pile has been a beneficiary of higher interest rates, which helped drive up interest and other investment income to $1.9 billion, from $1.1 billion in the first quarter of last year.

“Berkshire continues to benefit from attractive yields on short-term investments and large cash balances,” said Jim Shanahan, an analyst at Edward Jones. “Rising rates are enabling Berkshire’s still considerable cash balance to once again earn a competitive return.”

Berkshire’s earnings rose despite Buffett’s warning in May last year that profits at most of its operations would fall in 2023 as an “incredible period” for the US economy draws to an end. With businesses including railroad, retail, construction and energy, Berkshire is closely watched as a litmus test for US economic health, particularly amid elevated inflation and interest rates.

Earnings at its collection of insurance businesses jumped to $2.6 billion, versus $911 million in the same period last year, thanks to improved results at its auto insurer Geico, fewer catastrophes and an increase in insurance investment income. The conglomerate’s railroad unit BNSF reported an 8.3% decline in earnings from the prior period, which Berkshire said was down to “unfavorable changes in business mix” as well as lower fuel surcharge revenues.

Berkshire reported $12.7 billion in earnings attributable to shareholders for the first quarter, compared to $35.5 billion for the same period a year ago, largely due to lower investment income. Buffett typically advises shareholders against relying on the firm’s net income figures because they include the swings of its stock portfolio value and don’t reflect performance of its vast group of businesses. 

Berkshire’s annual meeting drew thousands of Buffett devotees. It’s the first without Charlie Munger, Berkshire’s vice chairman and Buffett’s long-time investing partner, who died at 99 in late November.