Berkshire Hathaway Inc. Q1 2022 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2022. Berkshire Hathaway Inc. operates a diverse portfolio of businesses including insurance (GEICO, Reinsurance Group), railroad (BNSF), utilities and energy (BHE), and various manufacturing, service, and retailing operations. The company continues to manage operations in a challenging environment marked by supply chain disruptions, geopolitical conflicts, and the ongoing effects of the COVID-19 pandemic.
Key Financial Metrics
- Revenue: Total revenues were $70.8 billion, an increase from $64.6 billion in Q1 2021.
- Net Earnings: Net earnings attributable to Berkshire Hathaway shareholders were $5.5 billion ($3,702 per equivalent Class A share), down significantly from $11.7 billion in Q1 2021.
- Investment Performance: The company reported a pre-tax investment and derivative contract loss of $2.0 billion, compared to a gain of $5.7 billion in the prior year. This was driven primarily by a $1.8 billion unrealized loss on equity securities held at period end.
- Cash and Liquidity: Cash, cash equivalents, and U.S. Treasury Bills held by insurance and other businesses totaled $102.7 billion ($35.5 billion cash + $67.1 billion T-Bills). Total consolidated cash and equivalents were $39.7 billion.
- Debt: Total consolidated borrowings were $119.7 billion. Parent company debt was $21.3 billion, while BNSF and BHE held the majority of the remaining debt.
- Share Repurchases: The company repurchased $3.2 billion of its Class A and Class B common stock during the quarter.
Material Changes vs. Prior Period
- Insurance Underwriting: After-tax underwriting earnings dropped to $47 million from $764 million in Q1 2021. GEICO reported a pre-tax underwriting loss of $178 million due to increased claims severity (inflation in auto repair and injury costs) and higher frequency, offsetting rate increases.
- Railroad (BNSF): After-tax earnings increased 9.6% to $1.4 billion. Revenue per car/unit rose 13.8% due to fuel surcharges and rate hikes, partially offset by a 3.3% decline in freight volumes.
- Utilities and Energy (BHE): After-tax earnings rose 6.7% to $750 million, driven by higher earnings from regulated utilities and tax equity investments, despite lower earnings from natural gas pipelines.
- Manufacturing, Service, and Retailing: After-tax earnings increased 15.5% to $3.0 billion. Strong demand was partially offset by higher input costs (materials, freight, labor) due to supply chain issues.
- Investment Portfolio: The equity securities portfolio fair value increased to $390.5 billion from $350.7 billion, but the quarter included significant unrealized losses due to market volatility.
Guidance, Outlook, and Risks
- Management Commentary: Management notes that investment gains and losses are often meaningless for evaluating periodic economic performance due to their volatility. They emphasize maintaining ample liquidity and safety over yield for short-term investments.
- Outlook: The company forecasts additional capital expenditures of approximately $9.4 billion for the remainder of 2022. They anticipate the difficult operating environment regarding supply chains and costs to continue through 2022.
- Acquisitions: On March 21, 2022, Berkshire agreed to acquire Alleghany Corporation for approximately $11.6 billion, expected to close in Q4 2022. An agreement also exists to acquire an additional 41.4% interest in Pilot Travel Centers in 2023.
- Risks: Key risks include the magnitude of catastrophe losses, the timing of claim payments, volatility in equity markets, supply chain disruptions, geopolitical conflicts, and the long-term economic effects of the pandemic. Goodwill impairment reviews are ongoing, with PCC's fair value exceeding carrying value by only 10.7% as of the last review.
Investor Verification Checklist
- Verify the impact of claims severity inflation on GEICO's future underwriting margins and rate adequacy.
- Monitor the unrealized losses in the equity portfolio and their potential to impact future earnings volatility.
- Review the supply chain constraints affecting manufacturing and retail segments and their effect on gross margins.
- Confirm the closing timeline and regulatory approvals for the $11.6 billion Alleghany acquisition.
- Assess the capital expenditure requirements for BNSF and BHE against operating cash flows.
- Track the share repurchase program execution relative to the $30 billion liquidity floor.