Why did Berkshire Hathaway’s Q1 2025 earnings drop despite record cash? Full results, market reaction and outlook

What Were Berkshire Hathaway’s Q1 2025 Financial Results?

Berkshire Hathaway Inc. reported a 14 percent decline in operating earnings for the first quarter of 2025, with the figure falling to $9.64 billion from $11.22 billion during the same quarter last year. The company’s earnings release on May 3 reflected the impact of unrealized losses on equity holdings and lower underwriting profits across its insurance subsidiaries, notably due to natural catastrophes in the United States.

Net earnings attributable to Berkshire Hathaway shareholders dropped even more sharply, coming in at $4.60 billion versus $12.70 billion in Q1 2024. This 64 percent drop was largely driven by investment losses totaling $5.04 billion, which included approximately $7.4 billion in unrealized markdowns on publicly traded equity securities. These are paper losses that Berkshire is required to reflect under U.S. GAAP, even if the investments remain unsold.

Earnings per Class A share fell to $3,200, compared to $8,825 a year earlier, while Class B share EPS dropped to $2.13 from $5.88. The reporting also indicated minimal change in the number of outstanding shares, showing steady shareholder capital management.

Why Did Berkshire Report Such a Steep Fall in Net Income?

The largest factor behind the drop in reported net income was the accounting treatment of unrealized equity losses under U.S. Generally Accepted Accounting Principles. Berkshire’s investment portfolio includes substantial stakes in Apple, Bank of America, Coca-Cola, and American Express, all of which experienced value fluctuations during the quarter. These mark-to-market losses, though not indicative of operational weakness, significantly reduced reported earnings.

While the company recorded $2.4 billion in realized gains from actual investment sales during the quarter, it was not enough to offset the drag from unrealized losses. In Q1 2024, by comparison, Berkshire had benefited from $11.2 billion in realized gains, which substantially inflated net income. The year-on-year shift in equity market performance therefore played a central role in the steep decline.

What Happened Across Berkshire’s Core Operating Segments?

Berkshire Hathaway’s operating earnings, considered a clearer measure of business health by Warren Buffett, showed mixed results across its core sectors. The insurance underwriting segment saw a major decline in profitability, falling to $1.34 billion from $2.60 billion in the previous year. This was largely attributed to catastrophe claims from the Southern California wildfires, which alone led to over $1.1 billion in pre-tax losses. GEICO delivered improved underwriting margins thanks to better claims experience, but the gains were insufficient to compensate for losses from other units like Berkshire Hathaway Reinsurance Group.

The insurance investment income segment posted an increase, climbing to $2.89 billion from $2.60 billion, aided by higher interest income from U.S. Treasury securities and investment-grade instruments. This uptick reflects the benefit of rising yields in a high-interest rate environment.

BNSF Railway, one of Berkshire’s key transportation businesses, recorded a profit of $1.21 billion compared to $1.14 billion in the same quarter last year. This modest growth was driven by stronger volumes of automotive and intermodal freight as consumer demand partially recovered in the U.S. Midwest and Southwest corridors.

Berkshire Hathaway Energy delivered a standout performance, with operating income of $1.10 billion, up from $717 million in Q1 2024. The energy division benefited from regulated rate base increases and improved profitability from its real estate brokerage affiliate, Berkshire Hathaway HomeServices, which rebounded amid stabilizing mortgage activity in certain U.S. regions.

Manufacturing, service, and retailing businesses remained flat, reporting $3.06 billion in earnings versus $3.08 billion last year. Demand remained soft for discretionary consumer goods, particularly in apparel and home furnishings, though segments like Precision Castparts showed resilience due to rising aerospace orders.

The “Other” segment plummeted to $41 million in earnings from $1.08 billion last year. The collapse was mainly due to a $713 million foreign exchange loss on non-dollar denominated debt, compared to a $597 million gain in Q1 2024. The segment also includes interest and dividend income from investments not directly held by insurance subsidiaries.

How Much Cash Does Berkshire Hathaway Hold Now?

As of March 31, 2025, Berkshire Hathaway’s cash and short-term investments stood at $147.7 billion, the highest in company history. When accounting for subsidiary-level liquidity, the conglomerate’s total cash and equivalents exceeded $347 billion. This surge in cash reflects the company’s disciplined investment approach in a high-valuation environment where Buffett and his lieutenants continue to see few attractive opportunities.

This elevated cash position gives Berkshire significant flexibility to act decisively when valuations correct or distressed assets come to market. It also provides a cushion to absorb future underwriting volatility or capitalize on major M&A transactions should suitable targets emerge.

How Did the Market React to the Earnings Release?

Despite the earnings miss, investors rewarded Berkshire Hathaway with further gains in its share price. Class A shares closed at $809,808.50, marking an all-time high. Class B shares rose to $539.80, up more than 2 percent in post-earnings trading. The company’s year-to-date performance remains strong, with BRK.B shares up over 19 percent as of May 3, far outperforming the S&P 500, which has experienced a mild pullback due to macroeconomic headwinds and mixed corporate results.

The stock’s rally underscores that investors view Berkshire Hathaway as a low-volatility, fundamentally sound compounder of capital. The market appears to be looking past short-term GAAP fluctuations, focusing instead on long-term value creation and the security offered by the firm’s fortress balance sheet.

What Are Institutional Investors Doing?

Institutional sentiment remains positive. Berkshire Hathaway continues to be a favourite among large asset managers, with institutional ownership exceeding 57 percent, according to recent filings. Major holders like Vanguard and BlackRock maintained or increased their exposure during the first quarter, drawn by the firm’s diversified earnings base and conservative capital allocation.

Importantly, Q1 2025 marked the tenth straight quarter during which Berkshire was a net seller of equities. The company sold $4.7 billion in stock and bought only $3.2 billion, further boosting its cash reserves. This consistent selling suggests a tactical retreat from overheated market conditions and may also signal preparation for opportunistic purchases in sectors like energy, logistics, or insurance.

What Did Warren Buffett and Management Say?

During the annual shareholders meeting in Omaha, Warren Buffett emphasized the scarcity of deals that meet Berkshire’s stringent return and risk criteria. He reaffirmed that valuations in both public markets and private equity remain unappealing for large-scale investments. Buffett also addressed geopolitical risks, noting that while global uncertainty has risen, Berkshire’s decentralised model and capital discipline offer strong protection against systemic shocks.

He also made it clear that Berkshire will not chase deals for the sake of growth, preferring instead to accumulate cash and wait for moments of dislocation or forced selling.

What Is the Outlook for Berkshire Hathaway in 2025?

Looking ahead, Berkshire Hathaway is expected to maintain its current posture of liquidity preservation while remaining alert for major dislocations. Analysts expect that, barring significant M&A opportunities, the company could expand its share repurchase program, especially given the strength of its free cash flow and the current undervaluation relative to intrinsic book value.

There is also potential for bolt-on acquisitions within the energy and transportation sectors, where Berkshire’s existing footprint provides synergy advantages. The insurance segment will be closely watched in Q2, particularly for further clarity on reinsurance rates and catastrophe exposures during the U.S. hurricane season.

Why Berkshire Remains a Long-Term Value Holding

Berkshire Hathaway’s first-quarter performance may have been hampered by GAAP distortions and natural catastrophe costs, but its long-term strengths remain undisputed. The company’s record liquidity, defensive investment posture, diversified revenue streams, and consistent capital discipline continue to make it a cornerstone for long-horizon investors.

Even as equity markets remain volatile and macroeconomic conditions evolve, Berkshire’s conservative stewardship, led by Warren Buffett and Greg Abel, ensures it is well-positioned to benefit when opportunities inevitably emerge.