Warren Buffett’s Berkshire reports fourth-quarter earnings decline

Berkshire Hathaway
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Operating income fell 8% to $6.7 billion after taxes in the fourth quarter, hurt by a drop in profits in the company’s rail business and a weakening U.S. dollar.

Excluding the fall in the dollar, which boosted the value of the company’s foreign currency debt, Berkshire’s operating income would have risen about 13% from the fourth quarter of 2021 to $7.9 billion.

This indicates the company’s (ticker: BRK.A, BRK.B) earnings power, as quarterly currency volatility has little impact on Berkshire’s underlying earnings power.

Share repurchases totaled $2.6 billion, up from $1 billion in the third quarter, bringing the total for 2022 to $7.9 billion. This is down sharply from $27 billion in 2021 and $24.7 billion in 2020.

Berkshire’s fourth-quarter operating earnings per share, excluding changes in the value of the company’s investment portfolio, fell 7% to $4,585 per Class A share. Baron’s Assessments. That was below the FactSet consensus estimate of $5,305 a share.

Berkshire’s total revenue for the quarter fell 53% to $18.1 billion. Most investment gains are unrealized gains in Berkshire’s large equity portfolio. CEO Warren Buffett tells investors to focus on operating income because the overall result can be swamped by quarterly changes in the value of a stock portfolio.

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During the year, Berkshire’s operating income rose 12% to $30.8 billion after tax.

At the end of 2022, Berkshire’s book value per share was about $323,600. Baron’s That’s down from an estimated $342,600 at the end of 2021, reflecting a drop in the value of Berkshire’s equity portfolio that year.

Berkshire had $53.6 billion in investment losses in 2022, including $58.6 billion in unrealized losses on its equity portfolio, compared to $309 billion at year-end.

It marked Buffett’s fourth annual decline in book value in 58 years.

However, book value rose in the fourth quarter from about $310,000 on Sept. 30.

Berkshire’s Class A shares, which closed Friday at $461,705, now trade at 1.4 times year-end book value. The current price-to-book ratio is slightly lower due to Apple’s acceleration in the value of Berkshire’s equity portfolio from early 2023.
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The company’s largest equity holding.

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Berkshire continues to sit on large amounts of cash after paying insurer Allegany nearly $12 billion in October. Berkshire’s total cash and cash equivalents, mostly treasury bills, were $128 billion on Dec. 31, compared with $109 billion on Sept. 30.

Berkshire appears to have sold a portion of Allegany’s bond portfolio, which was worth about $15 billion by mid-2022, and the bulk of Allegany’s stock portfolio, worth about $3 billion.

Berkshire continued to buy back shares after the start of 2023, repurchasing an estimated $700 million as of Feb. 13, the date of the company’s 10-K report.

When Berkshire bought a 38.6% interest in the truck-stop operator in 2017 under a deal with the Haslam family, Pilot Co. Berkshire disclosed in a 10-K that it paid $8.2 billion for a 41.4% stake in the company. Earlier this month, Baron’s Berkshire suggested it could pay $7 billion for the new stock.

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The price for the 41.4% interest is more than double the nearly $3 billion Berkshire paid for the initial stake and brings its total interest in Pilot Flying J Truck’s parent to 80%.

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The purchase price of 41.4% represents a total equity value of Pilot of $20 billion and represents one of Buffett’s best investments of the past decade.

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Berkshire said in its annual 10-K report that its Geico auto-insurance unit is expected to generate an underwriting profit in 2023 after an underwriting loss of $1.9 billion in 2022 due to rate increases. Geico is one of the top three auto insurance companies. In the country, measures are being taken to raise rates on policyholders to cover higher costs of claims, including labor and spare parts.

Geico’s expected profits for 2023 should boost Berkshire’s earnings this year. Geico’s voluntary policies fell to 1.7 million in 2022, and it may have lost its position as the nation’s No. 2 auto insurer to archrival Progressive. Real-time driver information, or telematics.

A forecast of 2023 underwriting profits for Geico indicates that the changes implemented by CEO Todd Combs will be beneficial. Combs, who also runs a portion of Berkshire’s equity portfolio, was installed as Geico CEO three years ago.

Berkshire continues to benefit from higher interest rates on its cash—mostly held in Treasury bills—and increased dividend income in its equity portfolio. Insurance investment income rose 66% to $2 billion after tax in the fourth quarter, and is expected to rise 35% to $6.5 billion for the full year 2022. This is another factor that will boost the company’s 2023 profitability.

Burlington Northern Railroad’s profit fell 13% to $1.5 billion in the fourth quarter, and to $5.9 billion for the full year 2022 compared to 2021. Burlington Northern’s results were negatively impacted by lower volumes in 2022 and higher fuel and other operating costs. Revenue rose nearly 12% year-on-year, helped by higher sales from a car load and fuel surcharges. Volumes for the year were down 5.8%.

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Berkshire’s powerhouse utilities business posted a 24% rise in fourth-quarter profit to $739 million and an 8% year-over-year gain of $3.9 billion.

Berkshire Hathaway Energy, a unit, is one of Berkshire’s most valuable businesses. That’s worth about $90 billion, based on the price the unit paid Greg Abel, head of Berkshire’s non-insurance operations, for a 1% stake in the business last year. Abel, 60, could be Buffett’s successor as CEO. Buffett is 92 years old.

Here is the successor language from the 10-K:

“The unavailability of the services of our key personnel, particularly Mr. Buffett, for any reason could have a material adverse effect on our operations. Berkshire’s board of directors has agreed to appoint Mr. Abel to replace Mr. Buffett should a replacement be needed for Mr. Buffett. The Board continues to monitor this risk, And may change its current view of replacing Mr. Buffett in the future.”

Berkshire Hathaway Energy, formerly headed by Abel, is one of the nation’s largest renewable power producers and is investing heavily in electricity transmission networks. It also has several natural gas pipelines.

Write to Andrew Barry at [email protected]

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