Berkshire Q2 2023

[gfp]

Results out.  Nothing too surprising so far.  Operating earnings up on Insurance strength.  Rail down as expected.  Pilot not very profitable initially.  (pilot is more profitable than it appears due to significant D&A related to acquisition accounting). I would expect to see some refinancing of Pilot's 7% bank loan debt load sometime soon.

 

Looks like they sold around 9.1 million shares of Chevron in the quarter.  Apple position unchanged.

 

Float up another $1 Billion in the quarter, same as Q1.  Repurchase activity slowed in the quarter.

 

looks like we are at 1.4x book value at Friday's close.

 

Warren got to print his first trillion dollar asset figure on the balance sheet, so that has to feel nice for an old fella.

Edited August 5, 2023 by gfp

[gfp]

This "bond portfolio" LOL

 

[backtothebeach]

A quick look at the numbers, hope I got them all correct.
	2023 Q2
Book Value
BH SE in $M	539,883
A shares Q end	1,447,541	(Q end A shares, in text: On an equivalent Class A common stock basis)
BV per A	372,966
BV per B	248.64
BV QoQ	7.2%
BV YoY	18.7%
Mcap	760,828
current B share $	350.4
BV multiple	1.41
Cash
cash & equiv.	44,611
treasury bills	97,322
cash railroad	5,444
payable for treasuries
CASH total	147,377
Operating Earnings
Insurance underwriting	1,247	top of Management's Discussion
Insurance investment	2,369
Railroad	1,264
Energy	785
Pilot	114
MSR	3,389
non-controlled businesses	535
other	340
Operating Earnings	10,043
Buybacks
A shares
1st	177
2nd	238
3rd	627
A shares price
1st	472,004.70
2nd	493,507.36
3rd	506,476.84
B shares
1st	220,351
2nd
3rd	2,134,093
B shares price
1st	308.57
2nd
3rd	335.55
Total buyback B$	1.303
average A share equiv price	498,788
average B share equiv price	332.53
additional buybacks after Q end
A shares	575320	Number of shares of common stock outstanding as of …
B shares	1,308,070,268
A share equivalents	1,447,367
addtl. buyback A shares	174.15
average price since Q end	525000
add. BB estimated value B$	0.091

[Libs]

Re BNSF- these are significant revenue declines in consumer products. Anyone know what's going on? Has shipping shifted from the west coast to some other port? Should this be viewed as permanent?

 

<Operating revenues from consumer products were $1.9 billion in the second quarter and $3.8 billion in the first six months of 2023, decreases of 22.7% and 17.0%, respectively, from 2022. The revenue declines were attributable to volume decreases of 16.1% in the second quarter and 16.2% in the first six months of 2023 compared to 2022 and lower average revenue per car/unit. The volume decreases were primarily due to lower intermodal shipments resulting from lower west coast imports, the loss of an intermodal customer and competition from lower spot rates in the trucking market which has impacted our domestic intermodal demand>

Edited August 5, 2023 by Libs

[ValueMaven]

Did Warren trim $40B from Apple??  As of 6/30: the Apple stake was $119B

[Masterofnone]

8 minutes ago, Libs said:

The volume decreases were primarily due to lower intermodal shipments resulting from lower west coast imports, the loss of an intermodal customer and competition from lower spot rates in the trucking market which has impacted our domestic intermodal demand>

is a factor:

 

 

 

Edited August 5, 2023 by Masterofnone

[gfp]

6 minutes ago, ValueMaven said:

Did Warren trim $40B from Apple??  As of 6/30: the Apple stake was $119B

That was last year.  This year it is $177.6 Billion

[yesman182]

40 minutes ago, gfp said:

This "bond portfolio" LOL

 

Are you laughing because it’s so small? 

[gfp]

9 minutes ago, Libs said:

Re BNSF- these are significant revenue declines in consumer products. Anyone know what's going on? Has shipping shifted from the west coast to some other port? Should this be viewed as permanent?

 

<Operating revenues from consumer products were $1.9 billion in the second quarter and $3.8 billion in the first six months of 2023, decreases of 22.7% and 17.0%, respectively, from 2022. The revenue declines were attributable to volume decreases of 16.1% in the second quarter and 16.2% in the first six months of 2023 compared to 2022 and lower average revenue per car/unit. The volume decreases were primarily due to lower intermodal shipments resulting from lower west coast imports, the loss of an intermodal customer and competition from lower spot rates in the trucking market which has impacted our domestic intermodal demand>

 

Some container traffic shifted to east coast and gulf coast ports but there is a very real global trade recession in goods at the moment.  Exports out of China are down.

[gfp]

1 minute ago, yesman182 said:

Are you laughing because it’s so small? 

 

Sure, the size relative to a trillion dollar asset base is pretty comical, but I was mostly laughing at the maturity / duration profile.  Makes FFH look like they are out on a limb at 2.4 years, especially when you consider the rest of the t-bill portfolio.

[ValueMaven]

wow - no trim in Apple at all!  ~$180B equity position!

 

Approximately 78% of the aggregate fair value was concentrated in five companies (American Express Company – $26.4 billion; Apple Inc. – $177.6 billion; Bank of America Corporation – $29.6 billion; The Coca-Cola Company – $24.1 billion and Chevron Corporation – $19.4 billion).

[John Hjorth]

Yes, fairly uneventful, except what has already been mentioned by @gfp and @Libs. Uneventful may perhaps by some persons be considered a bit boring, but that has nothing to do with unsatisfactory.

 

The numbers calculated by you, @backtothebeach looks right to me, thank you for sharing them.

 

With the minimum liquidity requirements for the insurance operations of USD 30 B related to claims, the group still has an aqusition capacity just north of USB 100 B, which continues to appear mind boggling and hard to relate to. It is unparalled strength.

Edited August 5, 2023 by John Hjorth

[gfp]

PCC doing better finally:

 

PCC’s revenues were $2.3 billion in the second quarter and $4.6 billion in the first six months of 2023, increases of 28.7% in the second quarter and 28.4% in the first six months compared to 2022. PCC derives significant revenues and earnings from sales of aerospace products. The revenue increases in 2023 were primarily attributable to higher demand for aerospace products, while power/energy and general and industrial products also contributed to the overall revenue increases. Long-term industry forecasts continue to show growth and strong demand for air travel and aerospace products.

PCC’s pre-tax earnings increased 31.5% in the second quarter and 27.3% in the first six months of 2023 compared to 2022. The improved results in 2023 reflect the increases in sales and improving manufacturing and operating efficiencies. We continue to strive to improve manufacturing efficiencies, maintain safety and prepare for increasing demand for PCC’s products. Continued growth in PCC’s revenues and earnings will be predicated on the ability to successfully increase production levels to match the expected growth in aerospace products demand.

[Spekulatius]

1 hour ago, gfp said:

This "bond portfolio" LOL

 

He should have had a talk with Moynihan about that  2 years ago. Might have saved him a hundred billion.

[KPO]

2 hours ago, gfp said:

Warren got to print his first trillion dollar asset figure on the balance sheet, so that has to feel nice for an old fella.

Not that it really matters, but is Berkshire the first non-bank to $1 trillion in assets?

[Charlie]

Barron´s take on the second quarter:

 

https://www.barrons.com/articles/berkshire-hathaway-earnings-warren-buffett-34659069?mod=md_stockoverview_news

 

 

Cheers!

[Libs]

1 hour ago, Spekulatius said:

He should have had a talk with Moynihan about that  2 years ago. Might have saved him a hundred billion.

Bingo. Yet another example of Buffett, just using common sense, saving our bacon. It's pretty jarring to think about highly paid CEO's stretching to ten year treasuries to 'make'.....another 1.5%.  I honestly have a hard time wrapping my head around that one.

[Libs]

7 minutes ago, Charlie said:

Barron´s take on the second quarter:

 

https://www.barrons.com/articles/berkshire-hathaway-earnings-warren-buffett-34659069?mod=md_stockoverview_news

 

 

Cheers!

I think the $10B /quarter is a reasonable number as a baseline. I use look- through to value Berkshire; does anyone have an estimate of what the undistributed earnings of the stock portfolio is? If it's around $10B, we're looking at look-through of $10B X 4 quarters = $40B + $10B= $50B.

 

$768B market cap / $50B is ~15X.

 

Hoping someone has this handy, so I can be lazy & not calculate it myself!

[crs223]

$1.3 Billion repurchased in the quarter (0.18% of outstanding shares).  Most of which was in June at an average b-equiv price of $336/share.  This is about the same amount of repurchasing as in 2022 Q3 when the price was $290/share.

 

 Repurchased an additional 260k B-equiv shares the first few weeks of July (~$90 million), which we'll learn more about next quarter.

 

 

 

[Luke]

31 minutes ago, Libs said:

I think the $10B /quarter is a reasonable number as a baseline. I use look- through to value Berkshire; does anyone have an estimate of what the undistributed earnings of the stock portfolio is? If it's around $10B, we're looking at look-through of $10B X 4 quarters = $40B + $10B= $50B.

 

$768B market cap / $50B is ~15X.

 

Hoping someone has this handy, so I can be lazy & not calculate it myself!

 

 

≡	AAPL - Apple Inc.	46.44	Add 2.28%	915,560,382	$164.90	$150,975,908,000		$182.00		30x earnings
≡	BAC - Bank of America Corp.	9.09	Add 2.25%	1,032,852,006	$28.60	$29,539,568,000		$31.31		10x earnings
≡	AXP - American Express	7.69		151,610,700	$164.95	$25,008,185,000		$165.37		17x earnings
≡	KO - Coca Cola Co.	7.63		400,000,000	$62.03	$24,812,002,000		$60.72		25x earnings
≡	CVX - Chevron Corp.	6.65	Reduce 18.76%	132,407,595	$163.16	$21,603,624,000		$159.29		10x earnings
≡	OXY - Occidental Petroleum	4.07	Add 8.93%	211,707,119	$62.43	$13,216,875,000		$63.51		10x earnings
≡	KHC - Kraft Heinz Co.	3.87		325,634,818	$38.67	$12,592,298,000		$35.28		14x earnings
≡	MCO - Moody's Corp.	2.32		24,669,778	$306.02	$7,549,445,000		$340.06		43x earnings
≡	ATVI - Activision Blizzard Inc.	1.30	Reduce 6.22%	49,439,781	$85.59	$4,231,550,000		$91.59		33x earnings
≡	HPQ - HP Inc.	1.09	Add 15.77%	120,952,818	$29.35	$3,549,965,000		$32.43		12x earnings

 

90% of the public portfolio is valued at around an average of 20x earnings. Not including undisclosed stocks. 

 

Id say its fair to say earnings yield of the portfolio incl undisclosed assets is 15-20b. 

 

So at 55b-60b a year->13-14x earnings

 

Still a really good play compared to the market. 

Edited August 5, 2023 by Luca

[Matthew Lembo]

Below is my look thru earnings calculation, I am at a similar earnings yield of 4.8% on $353bn (i get to the portfolio yield by grossing up the top 5 holdings as indicative of the portfolio at large) or ~$16.9bn but think we have subtract dividends paid to BRK of about ~$4.7bn as those are already in operating earnings. Therefore I get to an incremental pre tax look thru earnings of $12.1bn apply a 10% discount for some taxes and I get to $10.9 of incremental look thru earnings to BRK. If we annualize the $10bn of operating earnings to $40bn and add the $10.9bn then perhaps run rate total look thru earnings maybe ~$50.9bn on a market cap ~$760bn equates to a look thru earnings yield ~6.7%.

 

See my calculation below. Please rip it apart as I am guessing I missed something.  

 

 

[Munger_Disciple]

I found the Q2 results to be as I expected. A few things I found interesting:

 

The real estate brokerage revenues are down significantly compared to 2022, with the unit making $0 profit during the first six months of 2023. Building product revenues are down significantly in the MSR segment. I think there was a significant slowdown in the residential real estate market during Q2 contrary to what we hear in the press which seems to say CRE is bad but residential is ok. 

 

Consumer product revenues in MSR are also down which seems to indicate that the consumer is pulling back. Doesn't seem like we are going to have a soft landing. 

Berkshire was a net seller of stocks to the tune of $8B in Q2. 

Edited August 5, 2023 by Munger_Disciple

[gfp]

6 minutes ago, Munger_Disciple said:

Consumer product revenues in MSR are also down which seems to indicate that the consumer is pulling back. Doesn't seem like we are going to have a soft landing. 

 

 

Yes it is pretty much as expected and as Warren laid out so simply at the Annual Meeting.

 

"But the businesses are what count. So, the operating earnings, as you’ll see in the first quarter, came it at about $8 billion. And I would say that in the general economy, the feedback we get is that, I would say, perhaps the majority of our businesses will actually report lower earnings this year than last year.

 

In various degrees in the last six months or so, at various times, the businesses have left the incredible period, which is about extraordinary as I’ve seen a business since World War II, which poured out a lot of money to people who couldn’t get goods.

 

It was more extreme in World War II, but this was extreme this time. And it was just a question of getting goods to deliver. And people bought, and they didn’t wait for sales. And if you couldn’t sell them one thing, they would put another thing in their backlog. It was an extraordinary period.

 

And that period has ended. As you know, it isn’t that employment has fallen off a cliff or anything, in the lest. But it is a different climate than it was six months ago. And a number of our managers were surprised. Some of them had too much inventory on order, and then all of a sudden it got delivered, and people weren’t in the same frame of mind as earlier.

 

And now we’ll start having sales at places where we didn’t need to have sales before. But despite the fact that this year I think in general will be slower than last year, we actually are situated so that I would expect, and believe me when I say expect, nothing is sure."

[gfp]

3 hours ago, KPO said:

Not that it really matters, but is Berkshire the first non-bank to $1 trillion in assets?

 

So I believe that technically, AIG said they had a trillion dollars of assets in 2007 before the crash.  Obviously we could put an asterisk on that one.

 

 

[Munger_Disciple]

44 minutes ago, gfp said:

 

Yes it is pretty much as expected and as Warren laid out so simply at the Annual Meeting.

 

"But the businesses are what count. So, the operating earnings, as you’ll see in the first quarter, came it at about $8 billion. And I would say that in the general economy, the feedback we get is that, I would say, perhaps the majority of our businesses will actually report lower earnings this year than last year.

 

In various degrees in the last six months or so, at various times, the businesses have left the incredible period, which is about extraordinary as I’ve seen a business since World War II, which poured out a lot of money to people who couldn’t get goods.

 

It was more extreme in World War II, but this was extreme this time. And it was just a question of getting goods to deliver. And people bought, and they didn’t wait for sales. And if you couldn’t sell them one thing, they would put another thing in their backlog. It was an extraordinary period.

 

And that period has ended. As you know, it isn’t that employment has fallen off a cliff or anything, in the lest. But it is a different climate than it was six months ago. And a number of our managers were surprised. Some of them had too much inventory on order, and then all of a sudden it got delivered, and people weren’t in the same frame of mind as earlier.

 

And now we’ll start having sales at places where we didn’t need to have sales before. But despite the fact that this year I think in general will be slower than last year, we actually are situated so that I would expect, and believe me when I say expect, nothing is sure."

 

 

BTW I love Berkshire's bond portfolio which is basically cash equivalents in my book. I am sure Buffett is not thrilled with Moynihan's balance sheet management at BAC but he owned > 10% so couldn't get out. That's why he sold all the other banks.