Berkshire Hathaway Inc: Warren Buffett sees no chance of ‘stellar’ results with record cash
The company’s cash reserves hit a record high of $167.6 billion in the fourth quarter as the conglomerate struggled to find deals at attractive valuations. The company also reported operating profit of $8.48 billion, up from $6.63 billion in the year-ago quarter, driven by higher underwriting revenue and investment income amid higher interest rates and milder weather.
“There are only a handful of companies in this country that can really move the needle for Berkshire, and they have been co-opted by us and others endlessly,” Buffett, 93, said in his annual shareholder letter released with the company. Here are the results from Saturday. “Outside of the United States, there is essentially no candidate that is a meaningful option for Berkshire to deploy capital. There is absolutely no chance of any notable results overall.”
Despite Berkshire’s scale of acquisitions in recent years, the company still has trouble finding many of the big-ticket deals that have burnished Buffett’s reputation, leaving him with more cash than he and his investment agents can deploy quickly. I’m leaving that to Buffett.
After a brief pause during the pandemic, he later bought shares of Occidental Petroleum Corp., completing an $11.6 billion deal to acquire Alleghany Corp. The investor also increased Berkshire’s stake in five Japanese trading companies last year after profits soared. This sparked a rise in stock prices.
Buffett said the move was beneficial to shareholders as he continued to rely on share buybacks amid a lack of attractive alternatives. The company spent $2.2 billion on share buybacks in the fourth quarter, bringing its total for the year to about $9.2 billion. ‘Incredible times’
Berkshire’s profits are always closely watched as an indicator of the health of the U.S. economy because of the breadth of his businesses, which range from railroad BNSF to Geico and Dairy Queen. It also makes the company particularly vulnerable to higher interest rates that could dampen demand, and Buffett warned in May last year that most of its operating revenue would fall in 2023, when an “incredible period” for the U.S. economy ends.
The company said operating profit from its rail operations fell to $1.36 billion in the quarter compared to $1.47 billion in the same period a year ago. Operating profit in the Utilities and Energy segment also decreased from $739 million to $632 million.
This is the first time Berkshire has reported profits since Charlie Munger, Berkshire’s vice chairman and Buffett’s longtime investment partner, died at the age of 99 in late November. Buffett devoted much of his letter praising Munger’s role in building the massive company.
The company said operating profit from underwriting jumped to $848 million in the period from $160 million in the same quarter a year ago. The company’s Geico unit posted full-year pretax underwriting revenue of $3.64 billion compared with a loss in 2022 after raising premiums and reducing claims volume.
“Last year, our insurance business performed exceptionally well, setting records in sales, current assets, and underwriting profits,” Buffett said in his letter to shareholders. “We have a lot of room to grow.”
Including investments and derivatives, Berkshire posted quarterly net income of $37.6 billion, more than a year ago, thanks to rising interest rates. Berkshire often advises investors to examine investment gains or losses in relation to accounting rules, which may be misleading.
“Berkshire currently has the largest GAAP net assets of any American company,” Buffett said in his annual letter. “Record operating profits and strong equity markets drove the year-end figure to $561 billion. The combined GAAP net assets of the other 499 S&P companies representing U.S. companies were $8.9 trillion in 2022.”
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