Buffett Praises Apple After Trimming It, Drops Paramount Stake

(Bloomberg) -- At Berkshire Hathaway Inc.'s annual meeting in Omaha on Saturday, Warren Buffett heaped praise on Apple Inc. — after revealing he'd cut his stake in it.

Berkshire reported a $135.4 billion holding in the iPhone maker at the end of the first quarter, down from $174.3 billion at the year end. The move quickly became one of the biggest topics as the meeting unfolded, even though Berkshire had sold some shares in Apple during the quarter before. 

Despite the sale, Apple is “even better” than American Express and Coca-Cola, which are “wonderful” businesses Berkshire also owns, Buffett told the crowd of thousands in Omaha. Unless something changes dramatically, Apple will remain its largest investment, he said, hinting that tax implications had motivated the sale. The iPhone may be one of the greatest products of all time, Buffett added.

Apple has faced a slew of headwinds — a $2 billion antitrust fine, slumping sales in China and the scrapping of a decade-long car project among them. Shares in the company are down about 5% this year.

The sale bolstered Berkshire's cash pile, which climbed to a record $189 billion at the end of March. Given current market conditions — where rate cuts are uncertain, inflation remains elevated and geopolitical risks abound — Buffett said he didn't mind amassing the cash and said it could reach $200 billion by the end of the quarter.

The cash hoard also benefited from higher interest rates, earning $1.9 billion of interest income compared to $1.1 billion during the same quarter a year prior.

Berkshire's cash pile has grown amid a dearth of sizable deals. Buffett said on Saturday he's been unable to find recent acquisitions that would “move the needle” for the firm. Investors took it as a sign of his view on the stock market, too.

“Buffett is hoarding cash and therefore is bearish on the stock market,” said Bill Smead, chief investment officer at Smead Capital Management. “He is unlikely to apply those funds unless he has a chance to buy an entire company or there is a major market sell off of 30% or more.”

Here are some other key takeaways from Berkshire's annual meeting and earnings:

Earnings Gain

In a sign the US economy remained robust at the beginning of the year, the conglomerate's collection of businesses - which include manufacturers, home builders, insurance companies and retailers — generated $11.2 billion of operating earnings, a 39% jump on the prior year. 

Improved results at its insurance businesses helped the increase, earning $2.6 billion versus $911 million in the same period last year. At its auto-insurer Geico, pre-tax profits more than doubled to $1.93 billion, reflecting higher average policy premiums and lower claims, Berkshire said in its earnings statement. The business swung to profitability last year following several quarters of consecutive losses.

“There's still work to be done, but in the meantime, we are not going to shrink,” Buffett said of Geico.

Berkshire's railroad unit BNSF reported an 8.3% decline in earnings from the prior period, which Berkshire said was down to “unfavorable changes in business mix” as well as lower fuel surcharge revenues. 

Climate, Wildfires

Berkshire's PacifiCorp recorded $2.4 billion of estimated pre-tax probable losses from wildfires that spread across Oregon and California. About $1.7 billion of that remains unpaid, Berkshire said in its earnings report.

PacifiCorp faces liability claims from the blazes, and damages sought by plaintiffs in Oregon and California totaled approximately $7 billion at the end of the first quarter, Berkshire said. At its annual meeting, Greg Abel — Buffett's appointed successor and vice chairman of Berkshire's non-insurance operations — pointed to an additional claim for $30 billion that was filed last week, though he described it as “an incremental claim” to an existing lawsuit.

The absence of Charlie Munger, Buffett's long-time business partner who died in November age 99, cast a pall over the meeting, which kicked off with a tribute film featuring a highlight reel of Munger's famously acerbic one-liners.

Buffett said the two had a “lot of fun doing anything” — he referenced golf and tennis — but they had even more fun “with things that failed, because then we really had to work, and work our way out of them.”

At one point, Buffett mistakenly called Abel “Charlie” when he turned to him, and answered a question from a young attendee about what he'd do if he had another day with to spend with Munger. Buffett answered that he would have spent it the same way as other days. 

“He went everywhere with his mind, and therefore he was not only interested in the world at 99, but the world was interested in him,” Buffett said of Munger.

Succession

Buffett referenced his own mortality throughout the day, as the question of succession arose repeatedly. The billionaire investor assured Berkshire's shareholders that the company's future was in good hands. Abel — who understands businesses “extremely well”— should take over Buffett's capital allocation when he is no longer around, he said.

“When you've got somebody like Greg and Ajit, why settle for me?” Buffett said, referring also to Ajit Jain, Berkshire's vice chair of insurance operations. “It has worked out extremely well.”

Buffett also kept invoking leadership changes at Apple, noting the strong leadership of Chief Executive Officer Tim Cook, who took over for Steve Jobs.

“Buffett made it very clear that the structure of the firm is in place,” said J. Dennis Jean-Jacques, founder and chief investment officer at Ocean Park Investments who first attended the meeting in 2000. “It's going to become more important for shareholders to ensure the board of directors and managers keep the structure in tact — they are smart people and are not afraid to write to the CEO to let them know things are going wayward.”

Paramount Global

Berkshire also sold its position in Paramount Global at a loss, Buffett said, adding that he was responsible for the investment. The company has faced challenges as viewers shifted from traditional TV to online offerings and is currently the subject of takeover talks. 

“I did it all by myself, folks,” Buffett said. 

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