My thoughts on Berkshire Hathaway's annual meeting, CEO Greg Abel, and first-quarter earnings
Over the weekend, I attended the Berkshire Hathaway (BRK-B) annual meeting in Omaha, Nebraska for the 27th time...
I had a great time speaking at two events, running the 5K race, meeting new people, and connecting with old friends – like former hedge-fund manager Guy Spier, who I was relieved to see was doing well. (He's battling glioblastoma. I shared his final annual letter, with his investing and life lessons, in my February 17 and February 18 e-mails.)
The arena for the meeting was full, as you can see in the photo collage at the end of this e-mail. I'd guess attendance was only down 20% compared with last year – better than I expected.
As for the meeting itself, I'll be honest... It was sort of boring. (You can watch it in full on YouTube here.)
In the past, when Warren Buffett and the late Charlie Munger were on the stage, shareholders were always paying attention, waiting for one of Charlie's zingers or a pearl of wisdom about business or life.
CEO Greg Abel and the other Berkshire executives who spoke this weekend offered no such catnip. And their answers were so long-winded that shareholders were only able to ask roughly half the number of questions compared with previous years.
But that's okay. Shareholders don't need Abel to be charismatic or dispense folksy wisdom. They need him to do two things well: manage the business and allocate capital.
Based on what I heard on Saturday – and my confidence in Buffett getting the most important decision of his career right (appointing Abel as CEO) – I share Buffett's optimism that Abel is up to the job.
At the beginning of the meeting, Buffett commented, "Greg is doing everything I did and then some, and he's doing it better in all cases. He's the right person." (Here's the clip on YouTube.)
Buffett also introduced and thanked Apple (AAPL) CEO Tim Cook, who recently announced that he'll be stepping down at the end of August after an extraordinary 15-year run. During his time as CEO, Apple's market capitalization increased from $350 billion to today's $4.1 trillion. He trails only Nvidia (NVDA) CEO Jensen Huang in record value creation.
I think the analogy between Apple in 2011 and Berkshire today is apt. In both cases, boring, nut-and-bolts operators took over exceptionally strong businesses from visionary, legendary founders with a cult-like following. I think there's a good chance that Berkshire under Abel's leadership will also do well.
At the meeting, Abel shared his focus on maintaining Berkshire's unique and powerful culture and achieving operational excellence. He wasn't shy about recognizing where Berkshire needs improvement. And he clearly understands that capital allocation will be a key driver of value creation.
Here are several video clips on YouTube of his important comments:
And here's a 15-minute interview CNBC's Becky Quick did with him, discussing Berkshire's risk-management legacy, stock portfolio, and more.
Abel is off to a good start based on Berkshire's first-quarter earnings, reported on Saturday (press release here and 10-Q here).
I turn to my friend and former colleague, Glenn Tongue, for his thoughts as well. (He attended the meeting and is in three of the collage photos.)
He said the CEO succession is best described as "business as usual" at the company and that by all accounts it was a strong quarter:
He continued:
Headlines proclaimed that operating earnings grew 17.7% year over year. This is somewhat misleading as the foreign currency headwind a year ago (a $713 million loss) was a tailwind in the most recent quarter (a $249 million gain). Adjusting for this, operating earnings still grew a solid 7.2%.
Regarding insurance results, Glenn said they require a little more analysis:
Digging into the 10-Q shows that Geico's decline in year-over-year earnings resulted from a $338 million increase in marketing spend, which should pay off in accelerating growth.
While the remaining insurance businesses had strong results, the insurance market has been softening, so maintaining the current level of underwriting and profitability will be challenging.
As for share repurchases, Glenn noted:
As I predicted last quarter, there were finally some share repurchases after many quarters of inactivity. The company bought back $235 million of stock at an average price of approximately $487 per B share. This is a small amount, and there were no additional buybacks in April. I would guess the company will buy more shares this quarter if the stock remains at current levels.
He also analyzed Berkshire's stock buys and sells:
Another big capital allocation lever is the sale and purchase of various stocks. The company bought $15.9 billion in equities and sold $24.1 billion. This is a huge increase in activity.
In the same quarter last year, Berkshire only bought $3.2 billion and sold $4.7 billion. But the direction remained the same: This was the 14th consecutive quarter in which Berkshire was a net seller.
Lastly, he commented on Berkshire's record cash hoard:
The combination of $5.5 billion of free cash flow and $8.1 billion of net stock sales, partially offset by $9.7 billion spent on acquisitions and $235 million of share repurchases, led cash to rise to a record level of $380.2 billion. This is a staggering number – larger than the entire market caps of all but 30 companies in the world and equal to 37% of Berkshire's market cap.
With stocks at all-time highs, this "dry powder" (a phrase Abel used in Berkshire's annual letter) should be a strategic asset in this ever volatile world.
Thank you, Glenn!
Tomorrow, I'll update my estimate of Berkshire's intrinsic value, so stay tuned...
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.
P.P.S. Yesterday morning, I ran the 5K race through downtown Omaha, which was good fun. I finished in 22:11 (a 7:09 pace), good enough for 75th out of 1,486 finishers (top 5%) and 2nd out of 78 in my age group.
I looked in my records and could only find my time from 2019's race of 23:33, so I was happy to see that I'm much faster now. But I was slower than my personal best in 2020, when I ran two 5K races in 21:33 and 21:39.
As I ramp up my training for the NYC Marathon on November 1 (my 60th birthday!), I hope to be able to beat that...
