In a signal of transition at the top of one of America’s most renowned conglomerates, Warren Buffett has announced plans to retire as CEO of Berkshire Hathaway by the end of the year. Greg Abel, current Vice Chairman and overseer of the firm’s noninsurance businesses, is set to take over. Abel’s new responsibilities will include managing the company’s extensive range of insurance businesses and making informed decisions on how to invest Berkshire’s substantial cash reserves.
Berkshire Hathaway’s latest earnings report shows a substantial decline in profit compared to the same quarter last year. The company reported a profit of $4.6 billion, equivalent to $3,200 per Class A share, a steep drop from last year’s $12.7 billion, or $8,825 per Class A share. This decrease was influenced by a sharp decline in the value of investments and significant insurance losses totaling $860 million, primarily related to policies issued before catastrophic wildfires in Southern California.
Warren Buffett has always encouraged focusing on Berkshire’s operating earnings, which present a clearer picture of the company’s overall performance. These earnings exclude fluctuations in the value of investments, which are automatically counted in profit calculations even if the investments weren’t sold. On this basis, Berkshire’s operating earnings were down 14%, tallying $9.6 billion, or $6,703.41 per Class A share, as opposed to $11.2 billion, or $7,796.47 per Class A share, last year. The figure missed expectations set by analysts, who predicted $7,076.90 per Class A share in operating earnings.
Buffett’s unexpected retirement overshadowed discussions on other matters, sparking curiosity about why Berkshire is holding onto such a large sum of cash. By the end of the first quarter, the company had $347.7 billion in cash, up from $334.2 billion at the end of last year. Buffett explained to shareholders that he hasn’t come across appealing investments in companies he comprehends. The market’s conditions in April weren’t enticing enough, although he nearly finalized a $10 billion deal that fell apart.
While Berkshire’s various businesses, including BNSF railroad and other manufacturing and retail operations, generally mirror economic trends, the company’s report acknowledged unpredictability due to geopolitical factors and fluctuating trade policies. Going forward, revenue from areas like BNSF and its utilities division increased during the quarter, although insurance underwriting results were marred by losses from the wildfires.
Geico fared slightly better with an increase in underwriting profits to $2.2 billion from last year’s $1.9 billion, while reinsurance and other primary insurance divisions struggled. The prospect of tariffs remains a concern for Berkshire’s managers, including Dairy Queen, whose mainly locally sourced ingredients in China softens trade war impacts. However, Brooks Running, which manufactures footwear in Vietnam and Indonesia, may need to raise prices due to tariffs, with Brooks CEO Dan Sheridan awaiting specifics on which tariffs will apply.
According to Edward Jones analyst Kyle Sanders, Berkshire’s performance was largely stable except for the wildfire losses. The conglomerate was a net seller in the stock market, divesting $1.5 billion more than it acquired during the quarter. This has contributed to the growing cash reserve that now more than doubles the previous year’s total, as Buffett has refrained from significant acquisitions while shedding much of the company’s Apple stake.
Yet, Buffett still expressed admiration for Apple CEO Tim Cook, who attended the shareholder meeting and credited Cook with generating substantial returns for Berkshire. The diversified portfolio of Berkshire includes ownership of companies like Geico, the BNSF railroad, and a group of utilities and manufacturers, along with its significant holdings in well-known brands like See’s Candies and an extensive stock portfolio.