Berkshire Strong Out of the Gate in 2013

Ahead of its annual meeting this weekend, wide-moat rated  Berkshire Hathaway (BRK.A) (BRK.B) released results for the first quarter of 2013 that were much stronger than those from the year-ago period. First-quarter revenue increased 15% year over year to $43.9 billion on improved operating results from each of its operating segments. With expenses rising at a much slower rate than revenue, and most of the gains from investments and derivatives falling straight down to the bottom line, Berkshire reported a 49% increase in pretax earnings (to $5.0 billion) and a 51% increase in net earnings (to $4.8 billion). Stripping out the impact of investments and derivatives, operating earnings increased 42% to $3.8 billion. Net earnings per Class A equivalent share were $2,977.

Book value per Class A equivalent share at the end of the first quarter was $120,525--up 13% year over year and up more than 5% over the fourth quarter of 2012. This in line with our expectations, which had called for Berkshire's book value per share to increase to at least $118,000 per Class A share (or $79 per Class B share) during the period. The company also closed out the first quarter with $49.1 billion in cash on its books, up from $47.0 billion at the end of last year. It should be noted, though, that $12.1 billion of that total is slated for the Heinz deal, which received shareholder approval at the end of April, and is expected to close sometime this summer. It should also be noted that Warren Buffett tends to prefer to keep around $20 billion on hand as a backstop for its insurance business.

Unlike the fourth quarter of 2012, Berkshire did not buy back any shares during the first quarter of 2013. For those who may not recall, the company repurchased 9,475 Class A shares and 606,499 Class B shares for $1.3 billion in December of last year after increasing the threshold for share repurchases from 1.1 to 1.2 times book value. With Berkshire's book value per Class A share at $120,525 (or $80 per Class B share) at the end of the most recent period, Buffett would now be willing to step in and buy back stock at prices up to $144,630 per Class A share (or $96 per Class B share), implying a floor on the company's shares that is 10%-15% below today's current prices.

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