Warren Buffett turns record profit – despite lashings of global headwinds

Warren Buffett’s Berkshire Hathaway Inc on Saturday reported its highest-ever annual operating profit, even as foreign currency losses and lower gains from investments caused fourth-quarter profit to fall.

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

Berkshire also bulked up its cash hoard, ending the year with $128.6 billion.

The Omaha, Nebraska-based conglomerate sold about $16.3 billion of stocks in the fourth quarter and found better value repurchasing its own shares, buying back $2.6 billion in the quarter and $7.9 billion for all of 2022.

Berkshire shareholders “trust us to treat their money as we do our own,” Buffett said in his letter. “And that is 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.

Results included about $1.2 billion of currency losses and more underwriting losses at the car insurer Geico, which has struggled more than some rivals with accident claims and properly pricing policies to reflect risk.

Profit also fell at the BNSF railroad, while Berkshire generated more profit from its energy businesses and more income from its insurance investments as interest rates rose.

Quarterly net income fell 54% to $18.16 billion, or $12,412 per Class A share, from $39.65 billion, or $26,690 per share, a year earlier.

For all of 2022, Berkshire lost $22.82 billion, largely because of losses in its $308.8 billion common stock portfolio.

Warren Buffett considers net income a misleading performance measure because it includes gains and losses from stock holdings such as Apple Inc and Bank of America Corp, regardless of what Berkshire buys or sells.

A dearth of new investments helps explain how Berkshire boosted its cash stake despite having spent $11.5 billion in the fourth quarter to buy the insurance company Alleghany Corp.

That purchase helped Berkshire boost insurance “float,” which reflects premiums collected up front before claims are paid and help fund growth, 12% last year to $164.1 billion.

“We’re delighted to see the growth in float,” said Thomas Russo, a partner at Gardner Russo & Quinn who helps invest $8 billion, about 17% of which is in Berkshire stock. “Buffett often describes float as more important than cash.”

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

Berkshire’s share price rose 4% in 2022, far outpacing the Standard & Poor’s 500 .SPX which fell 18% including dividends, and reflecting Berkshire’s status as a defensive investment in rocky markets.

The shares have fallen 1.5% in 2023, while the index is up 3.4%.

Reuters