Unrealized Investment Losses Mar Berkshire's Results

With wide-moat Berkshire Hathaway's BRK.A/BRK.B first-quarter results being more or less in line with our expectations, we are leaving our $342,500 ($228) per Class A (B) share fair value estimate in place. That said, as we expect to continue to uncover tidbits of information related to the impact that the coronavirus pandemic could have on Berkshire's different operating subsidiaries, we are likely to make adjustments to our near-term assumptions as details become available, which should allow us to make more informed projections for the firm's businesses (and possibly alter our fair value estimate).

First-quarter revenue, which now includes unrealized and realized gains/losses from Berkshire's investments and derivatives portfolios, decreased 111.1% to negative $9.0 billion. Excluding the impact of investment and derivative gains/losses and other adjustments, First-quarter operating revenue increased 1.0% to $61.3 billion. Operating earnings, exclusive of the impact of investment and derivative gains/losses, increased 5.7% year over year to $5.9 billion during the March quarter. When including the impact of the investment and derivative gains/losses, operating earnings fell 453.5% to negative $49.7 billion.

Book value per share, which still serves as a decent proxy for measuring changes in Berkshire's intrinsic value, declined 12.2% sequentially to $228,953 (from $260,906 at the end of December), slightly better than our forecast of $228,293. The company closed out the March quarter with a record $137.3 billion in cash and cash equivalents, up from $128.0 at the end of last year. This left Berkshire with an estimated $112 billion in dry powder that could be committed to investments, acquisitions, and share repurchases. While the company did repurchase $1.6 billion of common stock during the March quarter, the bulk of that took place in February and the total amount was less than the $2.2 billion spent on buybacks during the fourth quarter of 2019.

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