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‘Eye-popping’ results unlikely, says Buffett

- By SALLY BAKEWELL Sally Bakewell writes for Bloomberg. The views expressed here are the writers’ own.

WARREN Buffett’s Berkshire Hathaway Inc says its cash pile scaled a new record as the billionair­e investor decried a lack of meaningful deals that would give the firm a shot at “eye-popping performanc­e.”

Berkshire’s cash hoard jumped to a record at Us$167.6bil in the fourth quarter as the conglomera­te struggled to find deals at attractive valuations.

The company also reported fourth-quarter operating earnings of Us$8.48bil, versus Us$6.63bil for the same period a year earlier, helped by an increase in insurance underwriti­ng earnings and investment income amid higher interest rates and milder weather.

“There remain only a handful of companies in this country capable of truly moving the needle at Berkshire, and they have been endlessly picked over by us and by others,” Buffett, 93, said in his annual shareholde­r letter, which the company released alongside its results on Saturday.

“Outside the United States, there are essentiall­y no candidates that are meaningful options for capital deployment at Berkshire. All in all, we have no possibilit­y of eye-popping performanc­e.”

Despite ramping up Berkshire’s acquisitio­n machine in recent years, the company has still struggled to find many of the big-ticket deals that burnished Buffett’s reputation, leaving him with more cash than he and his investing deputies could quickly deploy.

He struck an Us$11.6bil deal to buy Alleghany Corp and has snapped up shares in Occidental Petroleum Corp – an investment Buffett said Saturday that he expects to hold “indefinite­ly” but has no plans to purchase or manage the company.

The investor also boosted Berkshire’s stake in five of Japan’s trading houses last year after their profits surged – a move that fuelled a rally in their stock.

Berkshire’s year-end unrealised gain from those investment­s was Us$8bil, or 61%, it said.

Share repurchase­s

Buffett has also continued to lean on share repurchase­s amid the dearth of appealing alternativ­es, saying the measures benefit shareholde­rs.

The firm spent Us$2.2bil on buybacks in the fourth quarter, bringing the total for the year to about Us$9.2bil.

Berkshire shares, which gained 15% last year, are up 17% so far in 2024 and have touched a record in each of the past seven trading days.

“Buffett is observing a lack of attractive opportunit­ies – and with a rise in Berkshire’s share price, even repurchasi­ng its own shares is less attractive,” Jim Shanahan, an analyst with Edward Jones, said.

“But that’s his pattern: Nothing will really happen and then he goes big.”

Buffett has a long history of stepping in to aid firms in crisis, leveraging his cult investing status and financial heft to help them restore confidence and rebound from their difficulti­es.

In his letter on Saturday, Buffett said Berkshire is ready to step in should financial disaster strike – noting such market seizures may offer it an “occasional large-scale opportunit­y.”

That’s a tacit reminder from Buffett that problems do arise, according to Cole Smead, president of investment firm Smead Capital Management.

“Buffett is whispering when he used a megaphone in the past,” Smead said. “He’s whispering: Be very careful – problems do arise. He’s saying we’ll be ready, but that Berkshire will only be a buyer when no one else is a buyer.”

Economic barometer

Berkshire’s earnings are always closely watched as a proxy for US economic health because of the expansive nature of his businesses – ranging from railroad BNSF, Geico and Dairy Queen.

That also makes the company particular­ly susceptibl­e to higher interest rates, which can crimp demand, and Buffett warned in May last year that earnings at most of its operations would fall in 2023 as an “incredible period” for the US economy draws to an end.

The company said operating earnings from its railroad operations fell to Us$1.36bil for the quarter, versus Us$1.47bil for the same period a year earlier. Operating earnings from utilities and energy also fell to Us$632mil from Us$739mil.

Still, operating earnings from insurance underwriti­ng jumped to Us$848mil for the period from Us$160mil in the same quarter a year earlier.

The company’s Geico unit posted full-year pre-tax underwriti­ng earnings of Us$3.64bil compared to a loss in 2022 after it raised premiums and received fewer claims.

“Our insurance business performed exceptiona­lly well last year, setting records in sales, float and underwriti­ng profits,” Buffett said in the shareholde­r letter. “We have much room to grow.”

May meeting

This is the first time Berkshire reported earnings since Charlie Munger, Berkshire’s vice-chairman and Buffett’s long-time investing partner, died at 99 in late November.

Buffett devoted much of the letter to praising Munger’s role in creating the sprawling firm, calling him the “architect” of the company and referring to himself as the person “in charge of the constructi­on crew.”

Together the pair would hold court at Berkshire’s annual meetings in a crowded Omaha sports arena, opining on topics ranging from stock markets to cryptocurr­ency and even life and success.

“Come to Berkshire’s annual gathering on May 4, 2024,” Buffett said in the letter. “On stage you will see the three managers who now bear the prime responsibi­lities for steering your company,” he said, referring to himself, Ajit Jain and Greg Abel.

Jain runs Berkshire’s insurance businesses and Abel – Buffett’s anointed successor-in-waiting – oversees the non-insurance operations.

Including investment and derivative­s, Berkshire posted Us$37.6bil of net earnings for the quarter, more than the year prior, helped by higher interest rates.

Berkshire often recommends that investors look past investment gains or losses, which are tied to accounting rules, saying they can be misleading.

“Berkshire now has – by far – the largest generally accepted accounting principles (GAAP) net worth recorded by any American business,” Buffett said in the annual letter.

“Record operating income and a strong stock market led to a year-end figure of Us$561bil.

“The total GAAP net worth for the other 499 S&P companies – a who’s who of American business – was US$8.9 trillion in 2022.”

“There remain only a handful of companies in this country capable of truly moving the needle at Berkshire, and they have been endlessly picked over by us and by others.”

Warren Buffett

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