Berkshire Hathaway, the conglomerate run for many years by Warren E. Buffett, recorded its highest-ever annual revenue final 12 months. However its chief govt discovered cause in charge authorities regulation for hurting the outcomes of a few of its largest companies.
In his letter to buyers that historically accompanies the annual report, Mr. Buffett additionally paid tribute to Charlie Munger, his longtime lieutenant and Berkshire’s vice chairman till his dying in November at age 99.
The corporate — whose divisions embody insurance coverage, the BNSF railroad, an expansive energy utility, Brooks trainers, Dairy Queen and See’s sweet — disclosed $97.1 billion in internet earnings final 12 months, a pointy swing from its $22 billion loss in 2022 due to funding declines.
Berkshire additionally reported $37.4 billion in working earnings, the monetary metric that Mr. Buffett prefers as a result of it excludes paper funding good points and losses, for the 12 months, up 21 p.c from 2022. (Buyers typically see Berkshire as a bellwether of the American economic system, given the breadth of its enterprise.)
These good points arose from the highly effective engine on the coronary heart of Berkshire, its huge insurance coverage operations that embody Geico automobile insurance coverage and reinsurance. The division reported $5.3 billion in after-tax earnings for 2023, reversing from a loss within the earlier 12 months because of fewer vital catastrophic occasions, fee will increase and fewer claims at Geico.
The enterprise that Berkshire is finest identified for, inventory investments utilizing the large money that the insurance coverage enterprise throws off, additionally carried out properly final 12 months. Funding revenue jumped almost 48 p.c amid rising market valuations. (About 79 p.c of the conglomerate’s funding revenue comes from simply 5 firms: Apple, Financial institution of America, American Specific, Coca-Cola and Chevron.)
However two of the conglomerate’s largest nonfinancial operations carried out beneath expectations. BNSF, which operates the nation’s largest freight railroad, reported $5 billion in working revenue for the 12 months, whereas Berkshire’s utilities enterprise earned $2.3 billion. Earnings at each had been considerably beneath 2022.
Whereas Mr. Buffett famous in his annual letter to buyers the challenges that each divisions confronted final 12 months — BNSF was harm primarily by falling cargo volumes and the utility enterprise was battered by extra frequent forest fires — he additionally pointed to authorities laws as challenges.
The criticism contrasts with Mr. Buffett’s common help of presidency regulation, particularly given his backing of Democratic coverage efforts like the hassle to lift taxes on the rich that grew to become often called the “Buffett rule.”
Within the case of BNSF, Mr. Buffett wrote that “wage will increase, promulgated in Washington, had been far past the nation’s inflation objectives.” And for the utility enterprise, he went on at size about tighter laws in a number of states that crimped the facility utility’s profitability. “The regulatory local weather in a number of states has raised the specter of zero profitability and even chapter,” he wrote, alluding to California’s Pacific Gasoline & Vitality and Hawaiian Electrical in Hawaii.
Mr. Buffett additional warned that tighter laws on utilities might pose a broader downside for the trade, and recommended that Berkshire Hathaway would possibly curtail its enterprise in sure states. “We won’t knowingly throw good cash after unhealthy,” he wrote.
Within the annual letter — a must-read publication for his thousands and thousands of followers that’s peppered along with his customary folksy asides — Mr. Buffett talked up two of Berkshire’s longest-held investments, American Specific and Coke, as stable monetary performers. He additionally famous newer inventory positions that he stated he anticipated to keep up “indefinitely”: the fossil-fuel producer Occidental Petroleum, of which Berkshire owns almost 28 p.c, and stakes in 5 Japanese buying and selling corporations, thought to be a wager on the revival of Japan’s long-moribund economic system.
In selling the Japanese investments, Mr. Buffett took a jab at how a lot American firms pay their high executives. “The managements of all 5 firms have been far much less aggressive about their very own compensation than is typical in america,” he wrote.
But once more, Mr. Buffett spent little time speaking about what he has lengthy referred to as Berkshire’s “elephant gun,” the huge money hoard it amasses from its insurance coverage operations that he has used to strike main transactions. Lately, the conglomerate has favored utilizing that cash to purchase again its personal inventory as a greater technique to generate increased returns for buyers.
That pile grew to $163.3 billion by 12 months finish, however Mr. Buffett stated he noticed few alternatives to profitably spend that money at scale. “There stay solely a handful of firms on this nation able to actually shifting the needle at Berkshire, and so they have been endlessly picked over by us and by others,” he wrote. “All in all, we’ve got no risk of eye-popping efficiency.”
As an alternative, Mr. Buffett emphasised Berkshire’s monetary resilience. “I imagine Berkshire can deal with monetary disasters of a magnitude past any heretofore skilled,” he wrote. “This means is one we won’t relinquish.”
As anticipated, Mr. Buffett supplied a prolonged tribute to Mr. Munger, a fellow Omaha native who shared a love of investing. The 2 males had been Berkshire’s largest ambassadors with an typically comedic buddy act: Mr. Buffett the persistent optimist, Mr. Munger the gimlet-eyed cynic.
In a prolonged introduction, Mr. Buffett praised Mr. Munger because the “architect” of the Berkshire enterprise mannequin of investing in good companies at honest costs, an strategy that made them billionaires and lots of of their longtime shareholders millionaires.
“Charlie by no means sought to take credit score for his position as creator however as a substitute let me take the bows and obtain the accolades,” he wrote. “Even when he knew he was proper, he gave me the reins, and once I blundered he by no means — by no means — jogged my memory of my mistake.”
