Berkshire posts record annual operating profit

(Reuters) — Warren Buffett’s Berkshire Hathaway Inc. on Saturday reported its highest-ever annual operating profit, even as foreign currency losses and rising interest rates contributed to lower earnings in the fourth quarter.

Mr. 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 after selling about $16.3 billion of stock in the fourth quarter.

The Omaha, Nebraska-based company found more value buying back its own shares, repurchasing $2.6 billion, and bought back about $700 million more in the first month and a half of this year.

Though its stock price is down 1.5% this year, lagging the 3.4% gain in the Standard & Poor's 500, Berkshire shares outpaced the index by 22 percentage points in 2022, reflecting their status as a defensive investment in rocky markets.

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.

Net income for the quarter fell 54% to $18.16 billion, or $12,412 per Class A share, from $39.65 billion a year earlier.

Mr. Buffett considers net results misleading because they include gains and losses on investments that Berkshire hasn't sold.

Operating results included about $1.2 billion of currency losses and a sixth straight underwriting loss at insurer Geico, which has boosted premiums after struggling with accident claims and properly pricing policies to reflect risk.

Berkshire projected that Geico, which shed 7% of its 41,000-person workforce last year, will generate an underwriting profit this year.

Though rising rates helped Berkshire generate more income from insurance investments, they also hurt its Clayton Homes unit and namesake real estate brokerage by cutting into demand for housing construction, purchases and refinancings.

For all of 2022, Berkshire posted a net loss of $22.82 billion, though that largely reflected declines in its $308.8 billion portfolio of common stocks, led by Apple Inc.

Berkshire did spend $11.5 billion in the fourth quarter to buy insurance company Alleghany Corp.

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

“Buffett takes those insurance premiums and buys good quality businesses,” said Bill Smead, a longtime Berkshire investor at Smead Capital Management in Phoenix, which invests $5.5 billion.