A Weaker First Quarter for Berkshire

Wide moat-rated

First-quarter revenue increased 25.0% year over year to $65.2 billion, with the biggest contribution coming from Berkshire's insurance operations, which benefited from the inclusion of $10.2 billion in earned premiums from the AIG retroactive insurance agreement. Stronger top-line results from BNSF, which finally saw coal shipments return to more normalized levels, also helped. Absent the AIG deal, revenue increased 5.4% to $55.0 billion during the first quarter.

On the profitability front, pretax earnings of $5.7 billion were down 11.2% year over year, driven by an underwriting loss in Berkshire's insurance operations, as both reinsurance arms posted combined ratios in excess of 110% (related to deferred charge amortization on retroactive insurance contracts, adverse rates in the U.K., and losses tied to an Australian cyclone). Berkshire saw a slightly smaller contribution from investments and derivatives during the first quarter, which when eliminated from consideration, left pretax earnings down 10.3% year over year.

Book value increased 3.5% sequentially and 13.2% year over year to $178,073 per Class A equivalent share. This was higher than our forecast, which had book value increasing to $175,980 per share. The company closed out the first quarter of 2017 with $96.5 billion in cash on its books, up from $86.4 billion at the end of December--even with Berkshire dedicating $10.6 billion to stock investments during the period. We believe the firm had around $55 billion in dry powder at the end of March.

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