Berkshire cash hoard hits new high in absence of attractive deal targets

Berkshire Hathaway’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 (€176 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.

“I don’t think anybody sitting at this table has any idea of how to use it effectively and therefore we don’t use it now at 5.4 per cent but we wouldn’t use it if it was at 1 per cent,” Mr Buffett told the thousands of people attending Berkshire Hathaway’s annual meeting in Omaha at the weekend. “Don’t tell the Federal Reserve that, we prefer it. We only swing at pitches we like.”

Mr 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 and its purchase of shares in Occidental Petroleum, Berkshire has struggled to find sizeable deals.

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That has left Mr Buffett with more cash — what he called an unrivalled mountain of capital — than he and his investing deputies could quickly deploy.

As Berkshire’s annual meeting — the first without Mr Buffett’s long-time investing partner Charlie Munger, who died at 99 in late November — kicked off on Saturday, Mr 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.

The company sold some of its Apple 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.

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

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

In the absence of deals, Berkshire has turned to buying back its 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 Mr 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 per cent decline in earnings from the prior period, which Berkshire said was down to “unfavourable 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. Mr 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 the performance of its vast group of businesses.

Mr Buffett acknowledged his mortality several times, telling shareholders: “I not only hope you come next year, but I hope I come next year.” — Bloomberg/Financial Times Limited 2024