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Berkshire Hathaway Earnings
Jump in Q1 2021

Q1 2021 Key Points:

  • Berkshire Hathaway Reports Operating Income of $7.02B in Q1
  • Berkshire earned $11.7 billion in Q1 2021
  • BRK.B gained 10.2% vs. S&P 500’s total return of 6.2%
  • Representing 69% of total equities: American Express, Apple, Bank of America, and Coca-Cola
  • Berkshire repurchased $6.6B of its common stock
  • Warren Buffett (90) Future Successor: Greg Abel (58), Vice Chairman (estimated net Worth: $484 million), would become CEO
  • Buffett’s Net Worth: $109.8B as of May 9, 2021 (Source: Forbes)

Ingrid Hendershot, President and CEO, Hendershot Investments, a money management firm, reviews the First Quarter Earnings 2021 for Berkshire Hathaway, the largest investment position held by the firm.

Berkshire Hathaway Inc. (NYSE: BRK.B) reported the company’s net worth during the first quarter of 2021 increased 1%, or $4.8 billion, to $448 billion with book value equal to $293,627 per Class A share as of 3/31/21. Berkshire earned $11.7 billion in the first quarter, including $7.0 billion of operating earnings and $4.7 billion of investment and derivate gains.

Berkshire’s four major equity investment holdings represent 69% of total equities, including American Express at $21.4 billion (which charged 17% higher during the first quarter or $3.1 billion), Apple at $110.9 billion (which pared back 8% in total value or $9.5 billion), Bank of America at $40 billion (which deposited a 28% gain in value during the quarter or $8.7 billion), and Coca-Cola at $21.1 billion (slipping 4% or $800 million).

Berkshire’s revenues increased 6% during the first quarter to $64.7 billion with operating earnings rising 19.5% to $7 billion as many of Berkshire’s businesses experienced a significant recovery in revenues and earnings following the pandemic.

During the first quarter, Berkshire’s insurance underwriting profit more than doubled to $764 million as underwriting earnings from primary insurance offset underwriting losses from reinsurance. Underwriting results in the first quarter reflected the effects of the pandemic, arising from premium reductions from the GEICO Giveback program and reduced claims for private passenger automobile insurance. Insurance investment income declined 13% during the first quarter to $1.2 billion, reflecting the significant decline in interest rates resulting in lower interest income on substantial holdings of cash and U.S. Treasury Bills. Berkshire expects interest rates, which are historically low, to remain low. This will negatively affect earnings from fixed-income investments in 2021. The float of the insurance operations approximated $140 billion as of 3/31/2021, an increase of $2 billion since year end 2020. The average cost of float was negative during the first quarter as the underwriting operations generated pre-tax earnings of $764 million.

Burlington Northern Santa Fe’s (BNSF) revenues were relatively unchanged during the first quarter at $5.2 billion with net earnings chugging ahead 5% to $1.3 billion reflecting overall higher freight volumes and lower costs due to improved productivity and lower average fuel prices. Volume was up 5% during the quarter driven by double-digit gains in consumer and agricultural products, while industrial products and coal registered double-digit declines in volume.

Berkshire Hathaway Energy reported revenues charged ahead 31% during the first quarter to $5.9 billion. Net earnings rose 25% during the quarter to $703 million reflecting increased earnings from the natural gas pipelines and real estate brokerage businesses, partially offset by lower earnings from the other energy businesses.

Berkshire’s Manufacturing businesses reported first quarter revenues rose 6% to $15.9 billion with operating earnings up 15% to $2.4 billion. The Industrial Products segment continued to be hard hit with revenues down 9% and operating earnings down 13% during the first quarter. Precision Castparts experienced lower financial results due to the pandemic and the decline in commercial air travel and aircraft production. While air travel in the U.S. is increasing, Berkshire does not expect significant increases in the level of aircraft production to occur in the near term with Precision Castparts’ revenues and earnings expected to remain relatively low in 2021. On a more positive note, both Building and Consumer Products generated strong double-digit sales and earnings growth during the quarter as residential housing construction demand remains strong with consumer product sales also demonstrating recoveries from the pandemic led by strong demand for Forest River, Brooks Sports and Duracell products.

Service and Retailing revenues increased 4% during the first quarter to $19.6 billion with pre-tax earnings soaring 67% higher to $1.0 billion. COVID-19 still has had a negative impact on NetJets and FlightSafety operations due to lower demand for aviation services. Thanks to strong demand for home furnishings and new and pre-owned vehicle sales at Berkshire Hathaway Automotive, retailing operations reported a 21% increase in sales and a 162% jump in earnings during the first quarter. McLane’s revenues decreased 2% during the quarter to $11.6 billion with pre-tax earnings motoring 59% higher to $103 million due to increased earnings from the beverage business and ongoing cost management efforts.

Berkshire’s balance sheet continues to reflect very significant liquidity and a very strong capital base of $448 billion as of 3/31/21. Excluding railroad, energy and utility investments, Berkshire ended the first quarter with $460.9 billion in investments allocated approximately 61.2% to equities ($282.1 billion), 4.3% to fixed-income investments ($20.0 billion), 3.6% to equity method investments ($16.5 billion), and 30.9% in cash and equivalents ($142.2 billion).

Free cash flow rose 77% during the first quarter to $6.8 billion. During the quarter, capital expenditures declined 15% to $2.5 billion, including $1.9 billion in the capital-intensive railroad, utilities and energy businesses. Berkshire expects capital expenditures for the remainder of 2021 to approximate an additional $8.5 billion for BNSF and Berkshire Hathaway Energy. During the quarter, Berkshire sold or redeemed a net $9.3 billion in Treasury Bills and fixed-income investments and sold a net $3.9 billion of equity securities. The $1.3 billion acquisition of the remainder of the Dominion pipeline business is expected to close in the second quarter of 2021.

Berkshire repurchases its shares at prices below Berkshire’s intrinsic value, as conservatively determined by Warren Buffett and Charlie Munger. During the first quarter, Berkshire repurchased $6.6 billion of its common stock. These repurchases included 4,545,124 Class B shares acquired at an average price of $251.40 per share and 1,113 Class A shares purchased at an average price of $396,163 per share during March 2021. After quarter end, it appears Berkshire has acquired an additional $1.3 billion of its common stock based on its lower share count on the 10-Q as of 4/22/21.

Subsequent to the annual meeting, Warren Buffett announced that Greg Abel, Vice Chairman, would be Buffett’s future successor. We believe Mr. Abel will be more than able to continue growing Berkshire and maintaining its culture in the decades ahead.

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