Warren Buffett’s Berkshire Hathaway: What to Expect from Tomorrow’s Earnings

Shares in Berkshire Hathaway have been rising steadily in 2024, despite reductions in its Apple and BYD holdings. Even if overall net earnings are down for Q2, Buffett does not think it is a metric that shareholders should pay much attention to.

• Several million BYD shares have been offloaded in the weeks leading up to Q2 earnings.
• Buffett cut the firm’s Apple holding by 13% in Q1, which weighed on net earnings.
• He expects the firm’s cash pile to have reached $200bn in Q2, up from $182.3bn at the end of March.

Shares in Chinese automaker BYD [1211:HK] stalled last week after a regulatory filing with the Hong Kong Stock Exchange disclosed that Warren Buffett’s investment firm Berkshire Hathaway [BRK-B] shed just over 1.39 million Hong Kong shares, at an average price of HK$246.96. The firm also offloaded tranches of approximately 1.3 million and 2 million shares on 11 June and 19 June, respectively.

Berkshire Hathaway has reduced its stake to 4.94%, which means it is no longer required to disclose further sales to the Hong Kong Stock Exchange.

The fact that Warren Buffett is selling BYD shares should not come as a surprise. At Berkshire’s annual general meeting (AGM) back in May, he explained that it was his late business partner Charlie Munger who had originally insisted that the firm buy into BYD. He added that it is unlikely Berkshire will make future investments in China- or Hong Kong-based companies, and that the focus is on the US.

According to Angus Chan, Head of Auto Research at Bocom International, “it’s a profitable investment, but eventually Berkshire will sell all of its shares of BYD”.

Berkshire Hathaway shares are up 5.8% in the past month through 31 July. The share price has gained 23% since the start of 2024 and 25.4% in the past year. As of 31 July it was trading just below its all-time high, at which it peaked on 18 July.

Stock Portfolio Weighs on Q1 Net Earnings

Buffett’s conglomerate reported a year-over-year 39% surge in its net profit, excluding investment gains, to $11.22bn for Q1 2024. This was mainly driven by improvements in insurance underwriting earnings, which increased 158% from $911m a year ago to $2.6bn.

BNSF, the company’s railroad business, recorded earnings of $1.14bn, down slightly year-over-year, while Berkshire Hathaway Energy brought in $717m versus $416m in the year-ago quarter.

Overall net earnings plunged 64% to $12.7bn, mainly due to a slump in the valuation of its stock portfolio. Buffett cut his Apple [AAPL] stake by 13% during the first three months of the year, offloading approximately 116 million shares, according to the latest 13F filing. Nevertheless, Berkshire Hathaway’s cash hoard reached a record high of $182.3bn in Q1 2024.

Buffett said in his 2022 annual shareholder letter that GAAP earnings should not be a stick to beat the stock with. He called the net income metric “worse than useless” because it does not accurately reflect how the company has been performing.

Q2 Cash Pile Could Hit $200bn

Buffett told shareholders at May’s AGM that it is a “fair assumption” that the cash pile will have reached $200bn by the end of Q2. He said the firm would “love to spend it” but only on “something that has very little risk and could make us a lot of money”. Most of the cash pile is invested in short-term treasury yields.

The firm has not provided guidance for Q2, but its insurance underwriting earnings should once again be a strong point.

One area the insurance business is yet to move into is cybersecurity. While it has become a “fashionable” area, Berkshire is wary about taking on cyber insurance policies because of a lack of data, Ajit Jain, Vice Chairman of Insurance Operations, explained at the AGM.

BRK-B Top Pick for Financial Services ETFs

Regardless of Q2’s numbers, the Berkshire Hathaway share price should be primed for steady growth in the long run.

Buffett’s history of delivering consistent returns for shareholders over the last few decades — often outperforming the S&P 500 — means Berkshire Hathaway is a popular holding with financial services-focused thematic ETFs.

The stock is the top holding of the iShares US Financial Services ETF [IYG], with a weighting of 14.95% as of 30 July. The fund is up 26.1% in the past year and up 17% year-to-date.

The Proshares Ultra Financials ETF [UYG] also has Berkshire Hathaway as its top stock holding, with a weighting of 7.61% as of 31 July. The fund is up 45.54% in the past year and up 30.6% year-to-date. The Vanguard Financials Fund ETF [VFH] has Berkshire Hathaway as its second-biggest stock holding, with a weighting of 8.14% as of 31 May. The fund is up 26.8% in the past year and up 16.9% year-to-date.