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Stock Analyst Update

Berkshire Results Meet Expectations

Looking past accounting changes, some weakness at BNSF and the lapping of the AIG retroactive insurance deal penned last year were the major stories in first quarter earnings.

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Wide-moat rated  Berkshire Hathaway's (BRK.A) (BRK.B) reported first-quarter results that were basically in line with our expectations. We are leaving our $330,000 ($220) per Class A (B) share fair value estimate in place. First-quarter revenue, which now includes unrealized (as well as realized) gains/losses from Berkshire's investments and derivatives portfolios, decreased 22.5% to $50.5 billion. Excluding the impact of investment and derivative gains/losses, first-quarter revenue decreased 9.2%, with much of the decline tied to the lapping of the AIG retroactive insurance deal Berkshire penned last year.

Operating earnings (excluding the impact of investment and derivative gains/losses), the growth of which was also distorted by the AIG deal, as well as some weakness at BNSF, rose 48.7% year over year during the first quarter, aided by a lower tax rate year over year. When including the impact of the investment and derivative gains/losses, Berkshire's earnings fell to negative $1.1 billion.

Book value per Class A equivalent share, which serves as a good proxy for measuring changes in Berkshire's intrinsic value, decreased slightly to $211,184 (from $211,750 at the end of 2017). The company closed out the first quarter of 2018 with $108.6 billion in cash and cash equivalents, down from $116.0 billion at the end of December. This should leave Berkshire with around $85 billion in dry powder that can be committed to investments, acquisitions, share repurchases and dividends.

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Greggory Warren does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.