Berkshire Hathaway Inc, one of the world’s largest and most well-known conglomerates, owned by the legendary investor Warren Buffet, has reported its highest annual operating profit. This news comes despite a drop in profits for the fourth quarter due to foreign currency losses and lower gains from investment ventures.
Buffet, known for his long-term investment strategies and financial acumen, has stated in his annual shareholder letter that 2022 was a good year for the company, generating over $30 billion in profit.
This step is a remarkable achievement given the challenges many businesses face due to the ongoing Covid-19 pandemic, rising inflation, and supply chain disruptions caused by the Ukraine-Russia conflict.
The results were driven by the company’s diversified portfolio of businesses and investments, which span a wide range of industries such as insurance, energy, transportation, and retail. Berkshire Hathaway’s subsidiaries include GEICO, Dairy Queen, Duracell, BNSF Railway, and many more.
In addition, the company’s equity portfolio includes major holdings in well-known companies such as Apple, Bank of America, Coca-Cola, and Verizon.
Quarterly Profit Dips due to Currency Losses & Underwriting Losses from GEICO
Despite posting impressive annual profits, Berkshire Hathaway’s quarterly profit dipped significantly in the fourth quarter of 2022. The company’s net income fell by $6.8 billion, down from over $7.2 billion in the same period the previous year.
The results were largely due to over $1.2 billion in currency and underwriting losses from its insurance subsidiary, GEICO. The underwriting losses from GEICO were greater than those of its competitors as the company struggled to cope with rising claims and a challenging market environment.
Berkshire Hathaway faced challenges at the BNSF railroad, where profits dipped. However, the company was able to generate profits from its energy businesses and income from its insurance investments, particularly as the Federal Reserve hiked interest rates.
Quarterly Net Income Dips by 54% due to Common Portfolio Losses
Berkshire Hathaway’s quarterly net income took a significant hit, falling by 54% to $18 billion, down from over $39 billion for all of 2022. The company reported a loss of $22.82 billion, largely due to losses in its common portfolio.
However, Warren Buffet has cautioned that net income can be a misleading metric for performance. This misleading impact is because it includes gains and losses from companies such as Apple, regardless of whether Berkshire buys or sells their shares.
So instead, Buffet focuses on the company’s book value, which he considers a more accurate performance measure. Despite the dip in net income, Berkshire Hathaway was able to boost its cash reserves thanks to new investments.
The company sent over $11 billion to buy Alleghany Corp, a specialty insurance and reinsurance company. Berkshire Hathaway also made several other strategic investments during the year, including in Chevron and Verizon.