Tags: earnings / Clayton Homes / PCC / Lubrizol / Marmon / McLane
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Shareholders of Berkshire Hathaway will be pleased to hear that the multinational conglomerate has released its Q1 2023 results1, showcasing the strength and resilience of its diversified portfolio. The manufacturing, service, and retailing groups all performed well, with some individual businesses within the groups experiencing significant growth. While others faced challenges, the overall performance of the conglomerate highlights its ability to weather economic storms. Despite a slight decrease in pre-tax earnings, shareholders can take comfort in the company's strong and diversified business model.
Introduction
Berkshire Hathaway, a multinational conglomerate headed by Warren Buffett, has released its Q1 2023 results, showcasing the performance of its manufacturing, service, and retailing groups. These groups play a significant role in the company's overall performance, and their triumphant performance in Q1 2023 highlights the strength and resilience of Berkshire Hathaway's diversified portfolio. This article will provide a comprehensive analysis of the company's Q1 2023 results, focusing on the manufacturing, service, and retailing groups' performance, and the implications for Berkshire Hathaway's shareholders.
Manufacturing Group
The manufacturing group of Berkshire Hathaway comprises industrial, building, and consumer products businesses ↗ ↗. In Q1 2023, the group's revenues were $18.289 billion, a slight decrease from $18.421 billion in Q1 20221. However, the group's pre-tax earnings decreased by 7.5% to $2.611 billion in Q1 2023, compared to $2.824 billion in Q1 20221. Despite the decrease in revenues and earnings, the performance of individual businesses within the group varied.
The industrial products group, which includes Precision Castparts Corp. (PCC), Lubrizol, Marmon, and IMC International Metalworking Companies, experienced significant revenue growth in Q1 2023 compared to Q1 20221. PCC's revenues increased by 28.1% to $2.25 billion, Lubrizol's revenues increased by 5.2% to approximately $1.7 billion, Marmon's revenues increased by 16.4% to $3.1 billion, and IMC's revenues increased by 5.2% to $1.0 billion1. Business acquisitions accounted for nearly 70% of Marmon's revenue growth in Q1 20231.
Building Products Group
The building products group, which includes Clayton Homes and other building products businesses, faced challenges in Q1 2023. The group's revenues decreased by 10.5% and pre-tax earnings decreased by 21.8% compared to Q1 20221. This decline can be attributed to significant increases in interest rates, which have slowed demand for home building and certain building products businesses1.
Clayton Homes, a leading provider of manufactured and modular homes, experienced a 10.7% decrease in revenues in Q1 2023 compared to 2022, with new home unit sales decreasing by 18.0%1. The company's financial services revenues increased by 8.8% in Q1 2023 compared to 2022, with loan balances increasing by 2.3%1. However, pre-tax earnings of Clayton Homes decreased by 16.1% in Q1 2023 compared to 2022, primarily due to lower sales volumes1.
Aggregate revenues of other building products businesses decreased by 10.3% in Q1 2023 compared to 2022, with lower sales volumes and higher average prices1. Pre-tax earnings of these businesses decreased by 25.8% in Q1 2023 compared to 2022, with earnings as a percentage of revenues decreasing by 2.9 percentage points1.
Consumer Products Group
The consumer products group faced a challenging Q1 2023, with revenues decreasing by 19.3% compared to 20221. Forest River, a leading manufacturer of recreational vehicles, experienced a sharp decline in revenues of 38.6% in Q1 2023 compared to 2022, with an overall 44% decline in unit sales1. The apparel and footwear businesses also saw a decline in revenues of 5.7% in Q1 2023 compared to 2022, with lower revenues from apparel (12.1%) and higher revenues from footwear1. Duracell, a leading battery manufacturer, saw its revenues decline by 4.5% in Q1 2023 versus 20221.
Pre-tax earnings of the consumer products group declined by 40.7% in Q1 2023 compared to 2022, with lower earnings from Forest River and apparel and footwear businesses1. Apparel and footwear earnings declined by 18% in Q1 2023 compared to 20221. Earnings from Forest River declined by 57% in Q1 2023 compared to 2022, primarily due to the decrease in unit sales and unfavorable changes in product mix1.
Service and Retailing Groups
The service and retailing groups of Berkshire Hathaway showed mixed performance in Q1 2023. The service group's revenues increased by $796 million (17.6%) in Q1 2023 compared to 20221. In contrast, the retailing group's revenues were relatively unchanged in Q1 2023 compared to 2022, with BHA's revenues increasing by 3.6% and other retailers' revenues decreasing1.
BHA, which consists of over 80 auto dealerships that sell new and pre-owned automobiles and offer repair services and related products, saw its pre-tax earnings increase by 30.9% in Q1 2023 compared to 20221. Aggregate pre-tax earnings for the remainder of the retailing group decreased by $91 million (45.1%) in Q1 2023 compared to 2022, primarily due to a 49.6% decrease in earnings from the home furnishings businesses1.
McLane, a supply chain services company, experienced a revenue increase of $544 million (4.3%) in Q1 2023 compared to 2022, reflecting an increase of 3.5% from the grocery business and 5.7% from the foodservice business1. McLane's pre-tax earnings increased by $31 million (37.8%) in Q1 2023 compared to 20221.
Analysis of Revenue and Earnings Changes
The percentage changes in revenues and pre-tax earnings for the manufacturing, service, and retailing groups in Q1 2023 compared to Q1 2022 can be attributed to various factors. The manufacturing group's slight decrease in revenues and 7.5% decrease in pre-tax earnings can be attributed to the mixed performance of its individual businesses, with some experiencing growth while others faced challenges1. The service group's strong revenue growth of 17.6% can be attributed to the growth of individual businesses within the group1. The retailing group's relatively unchanged revenues and mixed earnings performance can be attributed to the varying performance of individual businesses, such as the growth of BHA's auto dealerships and the decline in home furnishings businesses1.
It is important to note that the net earnings for Q1 2023 and Q1 2022 exclude certain acquisition accounting expenses1. After-tax acquisition accounting expenses excluded from earnings in Q1 2023 were $202 million, while those excluded from earnings in Q1 2022 were $161 million1.
Effective Income Tax Rates
The effective income tax rate for Berkshire Hathaway in Q1 2023 was 23.7%, lower than the 24.6% effective income tax rate in Q1 20221. The decrease in the effective income tax rate can be attributed to various factors, including changes in tax laws and regulations, as well as the varying tax rates applicable to different businesses within the conglomerate. The lower effective tax rate in Q1 2023 contributed to the company's overall net earnings of $2,982 million, compared to $3,025 million in Q1 20221.
Pre-Tax Earnings as a Percentage of Revenues
Pre-tax earnings as a percentage of revenues is an important metric to evaluate the profitability of a company. In Q1 2023, Berkshire Hathaway's pre-tax earnings as a percentage of revenues were 9.6%, compared to 10.1% in Q1 20221. This decrease in the percentage indicates a slight decline in the company's profitability in Q1 2023 compared to Q1 2022. However, it is essential to consider the varying performances of the individual businesses within the manufacturing, service, and retailing groups when evaluating this metric.
Shareholders' Perspective
From a shareholder's perspective, the Q1 2023 results of Berkshire Hathaway showcase the strength and resilience of the company's diversified portfolio. While some businesses within the manufacturing, service, and retailing groups faced challenges, others experienced growth, contributing to the overall performance of the conglomerate. The slight decrease in pre-tax earnings seems insignificant at this point, further developments throughout a probably challenging 2023 need to be watched closely ↗.
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