Berkshire Hathaway Earnings: Cash Balances Hit Record $167.6 Billion as Firm Remains Disciplined

Key Morningstar Metrics for Berkshire Hathaway

• Fair Value Estimate BRK.A: $600,000
• Fair Value Estimate BRK.B: $400.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Low

What We Thought of Berkshire Hathaway’s Earnings

Wide-moat Berkshire Hathaway BRK.A/BRK.B reported fourth-quarter results that were slightly better than our expectations. We expect to increase our Class A $600,000 and Class B $400 per-share fair value estimates once we have incorporated the results into our valuation models.

Fourth-quarter reported revenue, which includes unrealized and realized gains/losses from Berkshire’s investment portfolios, increased to $169.9 billion from $92.6 billion in the year-ago period. For the full year, reported revenue increased to $439.3 billion from $234.2 billion when compared with 2022. Excluding the impact of investment gains/losses and other adjustments, fourth-quarter and full-year operating revenue increased 70.3% and 20.7% to $133.1 billion and $364.5 billion, respectively, with much of the gain coming from the Alleghany acquisition and the January 2023 onboarding of operating results from Pilot Travel Centers.

Operating earnings, exclusive of investment gains/losses, increased 28.0% and 21.1% year over year to $8.5 billion and $37.4 billion during the December quarter and full year, respectively, with most of the gain driven by significantly better insurance underwriting results (including the Alleghany acquisition) and higher levels of investment income. When including the impact of the investment gains/losses, reported operating earnings increased to $37.6 billion and $86.2 billion, from $18.1 billion and negative $22.8 billion, in the prior year’s respective periods.

Book value per share increased 7.0% sequentially to $388,693 from $363,413 at the end of September 2023, slightly better than our forecast of $381,991 for the quarter. Berkshire closed out December 2023 with a record $167.6 billion in cash and cash equivalents, up from $157.2 billion at the end of September 2023, as unutilized free cash flow, owing to a lack of viable investment opportunities, left cash balances firmly above the $150 billion threshold CEO Warren Buffett has claimed would be difficult to justify.

We have been less concerned about this issue than we anticipated, primarily because short-term rates are above 5% and Berkshire had $129.6 billion invested in T-bills at the end of December 2023. Of the $167.6 billion in cash and cash equivalents on Berkshire’s books at the end of the fourth quarter, the insurance and MSR divisions held $163.3 billion, composed of the $129.6 billion in T-bills and $33.7 billion in cash.

Buffett’s $125.9 Billion in Dry Powder

By our estimates, Berkshire came into the March quarter of 2024 with $125.9 billion in dry powder that could be committed to investments, acquisitions, and share repurchases. We arrive at that figure by taking the firm’s $167.6 billion in cash and equivalents and subtracting the $35 billion that we think the company needs to keep on hand as a backstop for the insurance business. We then exclude the operating cash needs for Berkshire’s subsidiaries, which by our estimates was $1.9 billion, or 2% of the $93.4 billion in operating revenue the firm generated during the December quarter, as well as funding needs for next quarter’s anticipated capital spending, which we estimate to be $4.8 billion.

We also note that Berkshire’s recent share repurchase activity continues to underwhelm us, as it amounted to $2.2 billion worth of stock in the fourth quarter and $2.1 billion on average the past six calendar quarters, compared with $6.5 billion on average quarterly during 2020-21. However, we do understand it, given that the company’s shares have traded close to our fair value estimates for much of that time.