- Berkshire Hathaway reported first-quarter earnings of $US21.7 billion.
- The results excluded Kraft Heinz’s earnings.
- The results now include investment gains and losses, driving wide swings in earnings.
- Warren Buffett has criticised the new rule as producing ‘wild and capricious’ swings.
- Follow Markets Insider’s coverage of Berkshire Hathaway’s annual meeting here.
Berkshire Hathaway reported first-quarter earnings of $US21.7 billion on Saturday, a stark contrast to last year’s first-quarter loss of $US1.1 billion. The wide swing in net income is attributable to a new accounting rule which requires companies to now include changes in the market value of investment portfolios within earnings. Swings in derivatives values are also included.
The company reported operating earnings, which excludes these elements, of $US5.6 billion, a 5% gain from a year earlier. Earnings from Berkshire’s investment in Kraft Heinz were excluded as the company as not yet reported first quarter results. Buffett recently criticised his investmetn in Kraft Heinz, saying he “overpaid” for the 27% stake.
The legendary investor and Berkshire Hathaway CEO Warren Buffett has criticised the new rule, saying that the new it would “severely distort” the company’s future quarterly results.
“As I emphasised in the 2017 annual report, neither Berkshire’s Vice Chairman, Charlie Munger, nor I believe that rule to be sensible,” wrote Buffett in the 2018 annual report.
He added: “Rather, both of us have consistently thought that at Berkshire this mark-to-market change would produce what I described as ‘wild and capricious swings in our bottom line.'”
Buffett also significantly increased buybacks in the quarter, a move he indicated in the 2018 annual report. Buffett spent $US1.7 billion on share buybacks, higher than all of 2017.
Last year, Berkshire relaxed its policy on when the company was allowed to buy back its shares. Berkshire has indicated it could spend as much as $US100 billion on buybacks if prices were attractive enough.
Buffett indicates the buybacks were an attractive way to deploy capital as he has struggled to find new investment opportunities. Buffett revealed Friday that one of his investment lieutenants has begun purchasing Amazon, driving the companies shares up 3%.
Berkshire Hathaway is up 7% this year.
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