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(Reuters) — Warren Buffett's Berkshire Hathaway Inc. on Saturday said fourth-quarter profit swelled, boosted by gains in many of its businesses and common stock investments such as Apple Inc., and said annual earnings reached a record high.
Berkshire also signaled renewed confidence in its own stock, repurchasing $6.9 billion in the quarter, and boosting total buybacks in 2021 to a record $27 billion.
But the pace of buybacks has slowed, with Berkshire, whose share price is just 2% below its record high, repurchasing just $1.2 billion of stock in 2022.
In his annual letter to Berkshire shareholders, Buffett said buybacks make “good sense” when alternatives such as buying whole companies or more stocks appear “unattractive.”
He also expressed confidence in Berkshire's dozens of operating businesses such as the BNSF railroad and Geico auto insurer, after having gone six years since a major acquisition and letting Berkshire's cash stake swell to $146.7 billion.
“Today, internal opportunities deliver far better returns than acquisitions,” Buffett wrote.
Quarterly operating income rose 45% to $7.29 billion, or approximately $4,931 per Class A share, from $5.02 billion a year earlier.
Analysts on average expected operating profit of $4,251 per Class A share, according to Refinitiv I/B/E/S.
“Overall results looked good,” said Cathy Seifert, an analyst at CFRA Research with a “hold” rating for Berkshire. Many industrial and consumer businesses benefited from the tailwind of an economic recovery, she said.
Ms. Seifert said 2022 could be tougher for top-line and margin growth because of inflationary pressure, including higher fuel and other input costs, and geopolitical pressure.
For all of 2021, operating income rose 25% to $27.46 billion, topping the previous record $24.78 billion set in 2018.
Net income more than doubled to $89.8 billion, aided by the stock prices of Berkshire's largest stock investments — Apple, Bank of America Corp. and American Express Co. — which each rose by more than one-third.
Mr. Buffett considers net income a misleading performance measure because it includes gains and losses from stock holdings, regardless of what Berkshire buys or sells.
Quarterly operating results benefited from improvement in property/casualty insurance operations, offset by rising accident claims at Geico as people drove more.
James Shanahan, an Edward Jones & Co analyst who rates Berkshire “buy,” said insurers are raising premiums to offset crash losses, and that higher premiums should be a “pretty strong catalyst” for improvement at Geico in 2022.
Ms. Seifert, however, said the deterioration in claims trends in life insurance “won't turn around in the next couple of quarters. That affects underwriting profitability for reinsurers such as Berkshire.”
The BNSF railroad, one of Berkshire's largest units, boosted profit 13%, helped by higher shipping volumes of consumer products, industrial products and coal.
Profit also rose 11% at Berkshire Hathaway Energy, as units including PacifiCorp and MidAmerican Energy reported benefiting from higher margins and increased income tax benefits.
Precision Castparts, an aircraft and industrial parts unit that took a $9.8 billion write-down in 2020 as plane production and air travel plummeted, boosted full-year pretax earnings 79% after eliminating more than 13,000 jobs, though revenue fell 8%.
A quick recovery for Precision's aerospace business isn't likely, Berkshire said, citing supply chain disruptions and Boeing Co.'s “significant inventory levels” following quality issues with its 737 and 787 planes.
Berkshire's share price rose 30% in 2021, topping the 29% gain in the Standard & Poor's 500 including dividends, and ending two years of significant underperformance relative to that index. It is also outperforming in 2022.
The Montana Supreme Court Tuesday affirmed a lower court judgment that a Berkshire Hathaway Inc. unit must pay $97.8 million in asbestos claims and other costs to the state under a comprehensive general liability policy it issued for 1973 through 1975.