Thread by @rationalwalk

1) Berkshire Hathaway's Q1 2023 Press Release and 10-Q have been released. I will post some thoughts on this thread after I spend some time reviewing results.

$BRKA $BRKB #Berkshire2023

2) The news release is here:

berkshirehathaway.com/news/may0623.p…

And the 10-Q is here:

berkshirehathaway.com/qtrly/1stqtr23…

3) Berkshire used $4.4 billion to repurchase stock during the first quarter and ended with 1,450,152 $BRKA equivalents outstanding.

The 10-Q indicates that 323 $BRKA equivalents were purchased between 3/31 and 4/25, amounting to $150-160 million of additional repurchases.

4) Berkshire reported Net earnings of $35,504 million, of which $8,065 million was operating earnings and $27,439 million was attributed to investment and derivative gains.

5) Of the investment and derivative gains, ~$23.4 billion were due to changes in the amount of unrealized gains in the equity portfolio and ~$1.7 billion of after-tax realized gains. Additionally, there was a $2.4 billion remeasurement gain associated with Pilot.

6) Insurance underwriting results improved while investment income was sharply higher, likely due to higher interest rates (will need to investigate further in Q). BNSF and BHE posted lower operating earnings while other controlled businesses were basically flat.

7) Book value was $347,932 per $BRKA share or $231.95 per $BRKB share. This puts trailing P/B ratio at ~1.41x.

Berkshire no longer discusses book value but many shareholders still track it.

Float was up $1 billion since yearend 2022 to $165 billion.

8) From the Cash Flow statement, appears that Berkshire was a net seller of equity securities during the quarter.

9) From Note 5, Berkshire discloses that its Chevron holding was $21.6 billion at 3/31/23 compared to $30 billion at 12/31/22.

CVX price on 12/30/22: $179.49
CVX price on 3/31/23: $163.16

Rough estimate: Berkshire sold ~34.8 million shares of CVX during Q1. ~$6 billion worth.

10) Note 5 Table:

11) There were additional equity portfolio sales in Q1 but it does not appear that there were sales in the other named positions (AXP, AAPL, BAC, KO). We can see a lower cost basis in the "Commercial Industrial, and other" category which includes CVX. 13F will be out next week.

12) A new accounting pronouncement resulted in retrospective changes to 2022 results which is never fun for those of us tracking many years of data. (Note 2 goes over the adjustments). Will have to review later.

13) 10-Q discloses that the additional 41.4% stake in Pilot cost $8.2 billion. Berkshire previously owned a 38.6% interest. Pilot is now fully consolidated starting on February 1, 2023. Implied valuation for all of Pilot is $19.8 Billion.

14) Since Berkshire paid a higher valuation for the 41.4% stake than it paid for the original 38.6% interest purchased in 2017, Berkshire recorded a $2.4 billion remeasurement gain associated with that 38.6% interest.

The implied valuation of $19.8 billion for all of Pilot… twitter.com/i/web/status/1…

14) Correction to the above tweet. According to note 3 of the Q, the pre-tax non-cash remeasurement gain for Pilot was $3 billion, not $2.4 billion which was an after-tax figure I got from the press release.

This implies that carrying value for the 38.6% interest in Pilot at… twitter.com/i/web/status/1…

15) The Haslam family has the option to require BRK to redeem for cash, all or a portion of their remaining 20% interest starting in 2024, and this is now being accounted for as a redeemable non controlling interest. Berkshire's preliminary accounting for the assets acquired:

16) Berkshire's fixed maturity portfolio remains tiny as a % of investments and very short duration. Apparently, Buffett hasn't been persuaded to buy longer term bonds at current rates. I take this as an implicit statement on inflation and skepticism of the current yield curve.

17) Random observation: Clayton Homes has a remarkably good record on its lending portfolio.

18) Buffett has done a great job of securing very low cost debt for Berkshire for decades to come.

19) All you have to do to infer Buffett's views on inflation & the yield curve is to look at his fixed-maturity portfolio on asset side and then look at debt on liability side.

I'm sure the question will be asked during the meeting, but his actions make the question unnecessary.

20) Let's see how far I can get doing a quick review of the MD&A before the CNBC pre-game show for the meeting starts in half an hour ...

21) Looks like a good quarter for insurance. GEICO returns to underwriting profitability!

22) This is more of what I'm used to from GEICO in terms of combined ratio, but look at that expense ratio! Under 10% ... I don't think I have ever seen that before. This is GEICO's first quarter of underwriting profit since Q2 2021. 🍾

23) My spreadsheet of GEICO's quarterly results since 2018 (not yet updated for Q1 2023).

24) GEICO had a decrease in policies-in-force of 2.4 million (13%) over the past year. Avg premiums increased by 15.2% over the same period. GEICO significantly cut advertising which resulted in lower policies in force.

25) This is in stark contrast with Progressive $PGR which has had an increase in policies in force over the past year and has boosted ad spend significantly, as I discussed in an article yesterday. rationalwalk.substack.com/p/progressive-…

26) I am tempted to say that GEICO essentially said, "Progressive, go ahead and take this business"... and then did... look at Progressive's policies in force over the past year:

27) For much of last year, Progressive appeared to be doing well, but they flipped to an underwriting loss in March 2023 (they report monthly). Progressive's Combined Ratio was 99 for Q1.

28) While PGR had adverse prior year development of $602.1 million in Q1, GEICO had favorable development of $338 million in Q1. It appears that GEICO's conservatism last year might be beginning to pay off, but we should be cautious extrapolating too much from one Q ...

29) Good performance from the Primary Group, which I will review in more detail later.

30) Underwriting profitability in Berkshire Hathaway Reinsurance Group's property and casualty segment.

31) Investment income is sharply higher. What a difference positive t bill yields makes... tax rate is higher b/c proportionally less investment income is coming from dividends. Berkshire pays a lower tax rate on dividends vs interest due to the div received deduction.

32) For years Buffett refused to take duration risk while irresponsible players did so. Now the irresponsible whine and complain ("Who could've seen rising rates coming!!!") while Berkshire is unscathed. 👏

33) BNSF results are down on tepid revenue growth and much higher compensation/benefit expenses and fuel. The operating ratio is up to 68.4% from 64.6%.... this is not great. Will have to dig into this more after the meeting.

34) Wow ... physical volumes are down by a lot... Leading recession indicator?

35) BHE results ... seems like a lot going on here to unpack, will have to return to this after the meeting.

36) Real estate brokerage is down ... not surprising...

37) Manufacturing, Service, and Retailing is about flat overall.

Looks like I've run out of time as CNBC's pregame show is about to begin, so I'll end this thread now.

I will have another thread for the meeting itself that will start shortly.

I am planning to write an… twitter.com/i/web/status/1…