OMAHA, Neb. — Berkshire Hathaway, the conglomerate run by famed investor Warren Buffett, posted strong operating earnings in the fourth quarter of 2023, driven by gains in its insurance businesses. The company also ended the year with a record $167.6 billion cash pile, fueling speculation about potential big acquisitions.
In his annual letter to shareholders, the 93-year-old Buffett paid tribute to his longtime business partner Charlie Munger, who passed away last November at age 99, calling him the “architect” of today’s Berkshire.
“Charlie never sought to take credit for his role as creator but instead let me take the bows and receive the accolades. In a way his relationship with me was part older brother, part loving father,” Buffett wrote.
Operating earnings, which exclude investment gains and losses, rose 28% year-over-year to $8.5 billion in the fourth quarter. For the full year 2023, operating earnings climbed 17% to $37.4 billion.
Berkshire’s insurance underwriting business saw profits soar in the quarter, with earnings of $848 million compared to just $160 million a year earlier. Auto insurer Geico swung to an underwriting profit in 2023 after rate hikes.
Geico’s comeback, engineered by Todd Combs and overseen by Ajit Jain, was one of Berkshire’s most important achievements in 2023,” Buffett said in the letter.
The huge cash stockpile has led to speculation that Buffett could make another major acquisition, though he has struggled to find deals in recent years amid high asset prices. Berkshire last made a mega acquisition in 2016 when it paid $37 billion for aircraft parts maker Precision Castparts.
Berkshire will always remain cautious about large acquisitions. The rewards from a purchase must be based on hard-headed calculations, not dreams,” Buffett wrote.
Charlie Munger’s Legacy
The annual letter opened on a personal note with Buffett’s tribute to Munger, who had been vice chairman of Berkshire Hathaway for decades. Munger was known for his biting wit and investing wisdom that heavily influenced Buffett’s philosophy.
“Charlie never stopped snooping around looking for new great businesses to own. What he taught me fifty-plus years ago was invaluable,” Buffett said.
Buffett first met Munger in 1959 and brought him on board as a vice chairman in 1978. Munger convinced Buffett to evolve past his early strategy of buying cheap “cigar-butt” stocks and focus instead on acquiring quality companies.
“Charlie, in 1965, promptly advised me: ‘Warren, forget about ever buying another company like Berkshire. But now that you control Berkshire, add to it wonderful businesses purchased at fair prices,'” Buffett recalled.
Under Munger’s influence, Berkshire transformed over the decades from a struggling textile mill to a diversified conglomerate comprising businesses like Geico, BNSF Railway and numerous utility and consumer brands.
“Berkshire has become a great company. Though I have long been in charge of the construction crew; Charlie should forever be credited with being the architect,” Buffett declared.
With Munger’s passing, all eyes are on how the company will adapt. Buffett already named his heir apparent, Greg Abel, who oversees Berkshire’s non-insurance operations.
Strong Insurance Results Boost Earnings
Berkshire’s insurance units, including auto, property and reinsurance businesses, have long been the engine driving Berkshire’s growth. The insurance divisions accounted for over half of Berkshire’s operating earnings last year.
Fourth quarter insurance underwriting profit of $848 million compared to a loss of $362 million in the same period last year. Some key factors behind the turnaround:
- Geico saw improved underwriting after rate hikes to offset higher vehicle repair costs. Geico earnings swung from a $245 million loss to a $1.27 billion profit in 2023.
- Reinsurance group General Re bounced back from catastrophes in 2022 with a $281 million underwriting gain.
- Berkshire Specialty Insurance produced a $30 million underwriting profit, continuing its track record of no underwriting losses since its startup in 2013.
Insurance investment income also grew 37% year-over-year to $2.76 billion in the fourth quarter, aided by higher short-term interest rates.
Meanwhile, railroad unit BNSF saw fourth quarter earnings decline 4% to $1.35 billion amid lower shipment volumes. The utility and energy division posted a 14% drop in quarterly earnings.
Berkshire’s Sprawling Business Empire
Omaha-based Berkshire Hathaway owns over 90 subsidiaries across insurance, railroads, utilities, manufacturing, retail and other sectors. The company has over 372,000 employees worldwide.
Some major Berkshire Hathaway businesses include:
- Insurance: Geico, General Re, Berkshire Hathaway Primary Group, Berkshire Hathaway Specialty Insurance
- Railroads: BNSF Railway
- Utilities and Energy: PacifiCorp Energy, NV Energy, Berkshire Hathaway Energy
- Manufacturing: Lubrizol chemicals, Precision Castparts aerospace parts, Acme Brick Company
- Retail: Nebraska Furniture Mart, See’s Candies, Dairy Queen, Fruit of the Loom
Berkshire’s market capitalization recently surpassed $900 billion, making it one of the most valuable public companies in the world. While Berkshire’s operating businesses are performing well, Buffett’s stock picks also account for a sizable share of Berkshire’s market value.
Berkshire holds major stakes in companies like Apple, Coca-Cola, Bank of America and American Express. Its $300 billion stock portfolio delivered Buffett over $52 billion in investment gains last year.
Outlook for 2024
In his letter, Buffett said he believes most of Berkshire’s operating units will post higher pre-tax earnings in 2024, assuming no major economic disruptions.
He expects the strengthening dollar will hurt earnings of businesses with significant non-U.S. operations like See’s Candies. But Buffett said Berkshire‘s practice of not risking cash reserves on foreign exchange bets pays off over time.
Buffett gave an optimistic long-term outlook for Berkshire’s operating earnings power. “The $37 billion you saw us make in 2023 was no aberration,” he told shareholders.
With Berkshire continuing to pile up cash faster than Buffett can spend it, the company repurchased $2.2 billion of its own stock in the fourth quarter. Berkshire bought back $9.2 billion in stock last year.
Buffett reiterated that buybacks will continue being made opportunistically if the stock is trading below Berkshire’s intrinsic value. Given his bullish view on Berkshire’s future earnings, he seems poised to keep his elephant gun loaded with cash for the next big acquisition that comes along.
