Buffett’s Berkshire posts record annual operating profit despite inflation, rate pressures By Reuters

By Jonathan Stempel

(Reuters) – Warren Buffett’s Berkshire Hathaway (NYSE:) Inc reported its highest annual operating profit on Saturday, even as foreign exchange losses and rising interest rates contributed to lower fourth-quarter profit.

Buffett called 2022 a “good year” for Berkshire in his annual letter to shareholders, after the conglomerate’s dozens of businesses generated $30.8 billion in profit despite rising inflation and supply chain disruptions. including the war in Ukraine.

Berkshire also increased its cash reserve, ending the year with $128.6 billion after selling about $16.3 billion of shares in the fourth quarter.

The Omaha, Nebraska-based company found more value by buying back its own shares, buying back $2.6 billion and repurchasing about $700 million more in the first month and a half of 2023.

Although its share price is down 1.5% this year, trailing the 3.4% rise in the , Berkshire shares outperformed the index by 22 percentage points in 2022, reflecting its status as a defensive investment. in rocky markets.

Berkshire shareholders “trust us to treat their money as we treat our own,” Buffett said in his letter. “And that’s a promise we can make.”

Quarterly operating profit fell 8% to $6.71 billion, or $4.596 per Class A share, from $7.29 billion.

Net income for the quarter fell 54% to $18.16 billion, or $12,412 per Class A share, from $39.65 billion a year earlier.

Buffett believes the net results are misleading because they include gains and losses on investments that Berkshire has not sold.

GEICO’S STRUGGLES PERSIST

Operating results included about $1.2 billion in foreign exchange losses and a sixth straight underwriting loss at auto insurer Geico, which has increased premiums after struggling with accident claims and pricing policies appropriately to reflect risk. .

Berkshire projected that Geico, which cut 7% of its 41,000-person workforce last year, will turn a technical profit in 2023.

The results also reflected a 24% increase in profit from energy and utility operations, as well as Berkshire’s share of Occidental Petroleum Corp (NYSE:) profit after it acquired a 21.4% stake in the oil company.

Berkshire also owns 20.4% of amexpress Co (NYSE:), which do not include their financial results.

While the rate hike helped Berkshire generate more income from insurance investments, it also hurt its Clayton Homes unit and the real estate brokerage of the same name by reducing demand to build, buy and refinance homes.

In addition, earnings at the BNSF railroad fell 13% as the Federal Reserve’s rate-hike campaign began to slow the nation’s economy and shipping volumes of consumer, industrial, and agricultural products, as well as coal, decreased.

“Interest rates were the main driver of somewhat weak fourth-quarter results” in a “pretty strong year” for Berkshire, said Jim Shanahan, an analyst at Edward Jones & Co with a “buy” rating on Berkshire.

For all of 2022, Berkshire posted a net loss of $22.82 billion, though that largely reflected declines in its $308.8 billion common stock portfolio, led by Apple Inc (NASDAQ:).

MORE FLOTATION

Berkshire spent $11.5 billion in the fourth quarter to buy insurance company Alleghany (NYSE:) Corp.

That purchase helped boost insurance “float,” which reflects premiums collected in advance before claims are paid and helps finance growth, up 12% last year to $164.1 billion.

“Buffett takes those insurance premiums and buys good quality businesses,” said Bill Smead, a longtime Berkshire investor at Smead Capital Management in Phoenix, which invests $5.5 billion.

Thomas Russo, whose Gardner Russo & Quinn in Lancaster, Pennsylvania, invests $8 billion, about 17% of which is in Berkshire, added: “Buffett often describes free float as more important than cash.”

Berkshire also spent $8.2 billion on January 31 to increase its stake in truck stop operator Pilot Travel Centers to 80% from 38.6%.

Cathy Seifert, an analyst at CFRA Research who rates Berkshire a “hold,” said Geico remains a “big pain point” due to high accident losses, and asked it to disclose “more about what it’s doing to rectify a chronic situation”.