Berkshire Hathaway, the conglomerate run for decades by Warren E. Buffett, posted its highest annual profit last year. But its chief executive found reason to blame government regulation for hurting the results of some of its biggest businesses.
In his letter to investors that traditionally accompanies the annual report, Mr. Buffett paid tribute to Charlie Munger, his longtime lieutenant and Berkshire’s vice chairman until his death in November at age 99.
The company — whose divisions include insurance, BNSF railroad, a sprawling electric business, Brooks running shoes, Dairy Queen and See’s candy — disclosed net income of $97.1 billion last year, a sharp turnaround from a $22 billion loss in 2022 due to reduction of investments.
Berkshire also reported $37.4 billion in operating profit, Mr. Buffett’s preferred financial metric because it excludes gains and losses on paper investments, for the year, up 21 percent from 2022. (Investors (often see Berkshire as the core of the American economy, given the breadth of its business.)
Those gains came from the powerful engine at Berkshire’s heart, its massive insurance businesses that include Geico auto insurance and reinsurance. The division reported an after-tax profit of $5.3 billion for 2023, reversing losses the year before thanks to fewer major catastrophic events, rate hikes and fewer claims at Geico.
The business for which Berkshire is best known, investing in stocks that use the vast cash shed by the insurance business, also performed well last year. Investment income jumped nearly 48% amid rising market valuations. (About 79 percent of the group’s investment income comes from just five companies: Apple, Bank of America, American Express, Coca-Cola and Chevron.)
However, two of the group’s largest non-financial operations performed below expectations. BNSF, which runs the nation’s largest freight railroad, reported operating profit of $5 billion for the year, while Berkshire’s utility earned $2.3 billion. Earnings in both were significantly lower than in 2022.
While Mr. Buffett noted in his annual letter to investors the challenges both divisions faced last year — BNSF was hit primarily by declining shipment volumes and the utility was hit by more frequent wildfires — he also pointed to government regulations as challenges.
The criticism contrasts with Mr. Buffett’s general support for government regulation, especially given his support for Democratic policy efforts such as the effort to raise taxes on the wealthy that became known as “the Buffett Rule.”
In the case of BNSF, Mr. Buffett wrote that “the wage increases announced in Washington were well beyond the nation’s inflation targets.” And for utilities, he pushed extensively for tighter regulations in many states that limited utility profitability. “The regulatory climate in some states has raised the specter of breakeven or even bankruptcy,” he wrote, referring to California’s Pacific Gas & Energy and Hawaii’s Hawaiian Electric.
Mr. Buffett further warned that tighter regulations on utilities could create a broader problem for the industry and suggested that Berkshire Hathaway might limit its operations in some states. “We will not knowingly throw good money after bad,” he wrote.
In the annual letter — a must-read publication for his millions of followers that is filled with his usual traditional asides — Mr. Buffett spoke of two of Berkshire’s longest-standing investments, American Express and Coke, as remarkable economic performances. He also noted newer stock positions he said he expected to hold “indefinitely”: fossil fuel producer Occidental Petroleum, of which Berkshire owns nearly 28 percent, and stakes in five Japanese trading companies, seen as bets on its revival Japan. long-term sick economy.
In promoting Japanese investment, Mr. Buffett looked at how much American companies pay their top executives. “The managements of all five companies were away less aggressive about their own compensation than is typical in the United States,” he wrote.
Again, Mr. Buffett spent some time talking about what he has long called Berkshire’s “elephant weapon,” the huge stash of cash it amasses from its insurance business that it has used to make big trades. In recent years, the conglomerate has favored using that money to buy back its shares as a better way to generate higher returns for investors.
That pile grew to $163.3 billion by the end of the year, but Mr. Buffett said he saw little opportunity to profitably spend that cash at scale. “There are only a handful of companies in this country capable of really moving the needle on Berkshire, and they have been endlessly picked on by us and others,” he wrote. “All in all, we have no possibility of impressive performance”.
Instead, Mr. Buffett emphasized Berkshire’s financial resilience. “I believe Berkshire can handle financial disasters of a magnitude beyond any other experience,” he wrote. “This ability is one we will not give up.”
Predictably, Mr. Buffett offered a lengthy tribute to Mr. Munger, a fellow Omaha native who shared a love of investing. The two men were Berkshire’s greatest ambassadors with an often comic buddy act: Mr. Buffett the persistent optimist, Mr. Munger the wide-eyed cynic.
In a lengthy introduction, Mr. Buffett praised Mr. Munger as the “architect” of Berkshire’s business model of investing in good businesses at fair prices, an approach that made them billionaires and many of their longtime shareholders millionaires.
“Charlie never sought to take credit for his role as creator, but instead let me take the bows and collect the awards,” he wrote. “Even when he knew he was right, he gave me the reins and when I was wrong, he never – never – reminded me of my mistake.”
