Berkshire Hathaway, the conglomerate run for decades by Warren E. Buffett, recorded its highest-ever annual profit last year. But its chief executive found reason to blame government regulation for hurting the results of some of its biggest businesses.
In his letter to investors that traditionally accompanies the annual report, Mr. Buffett also paid tribute to Charlie Munger, his longtime lieutenant and Berkshire’s vice chairman until his death in November at age 99.
The company — whose divisions include insurance, the BNSF railroad, an expansive power utility, Brooks running shoes, Dairy Queen and See’s candy — disclosed $97.1 billion in net earnings last year, a sharp swing from its $22 billion loss in 2022 because of investment declines.
Berkshire also reported $37.4 billion in operating earnings, the financial metric that Mr. Buffett prefers because it excludes paper investment gains and losses, for the year, up 21 percent from 2022. (Investors often see Berkshire as a bellwether of the American economy, given the breadth of its business.)
Those gains arose from the powerful engine at the heart of Berkshire, its vast insurance operations that include Geico car insurance and reinsurance. The division reported $5.3 billion in after-tax earnings for 2023, reversing from a loss in the previous year thanks to fewer significant catastrophic events, rate increases and fewer claims at Geico.
The business that Berkshire is best known for, stock investments using the enormous cash that the insurance business throws off, also performed well last year. Investment income jumped nearly 48 percent amid rising market valuations. (About 79 percent of the conglomerate’s investment income comes from just five companies: Apple, Bank of America, American Express, Coca-Cola and Chevron.)
But two of the conglomerate’s biggest nonfinancial operations performed below expectations. BNSF, which operates the nation’s biggest freight railroad, reported $5 billion in operating profit for the year, while Berkshire’s utilities business earned $2.3 billion. Earnings at both were significantly below 2022.
While Mr. Buffett noted in his annual letter to investors the challenges that both divisions faced last year — BNSF was hurt primarily by falling shipment volumes and the utility business was battered by more frequent forest fires — he also pointed to government regulations as challenges.
The criticism contrasts with Mr. Buffett’s general support of government regulation, especially given his backing of Democratic policy efforts like the effort to raise taxes on the wealthy that became known as the “Buffett rule.”
In the case of BNSF, Mr. Buffett wrote that “wage increases, promulgated in Washington, were far beyond the country’s inflation goals.” And for the utility business, he went on at length about tighter regulations in several states that crimped the power utility’s profitability. “The regulatory climate in a few states has raised the specter of zero profitability or even bankruptcy,” he wrote, alluding to California’s Pacific Gas & Energy and Hawaiian Electric in Hawaii.
Mr. Buffett further warned that tighter regulations on utilities could pose a broader problem for the industry, and suggested that Berkshire Hathaway might curtail its business in certain states. “We will not knowingly throw good money after bad,” he wrote.
In the annual letter — a must-read publication for his millions of followers that is peppered with his customary folksy asides — Mr. Buffett talked up two of Berkshire’s longest-held investments, American Express and Coke, as solid financial performers. He also noted newer stock positions that he said he expected to maintain “indefinitely”: the fossil-fuel producer Occidental Petroleum, of which Berkshire owns nearly 28 percent, and stakes in five Japanese trading firms, regarded as a bet on the revival of Japan’s long-moribund economy.
In promoting the Japanese investments, Mr. Buffett took a jab at how much American companies pay their top executives. “The managements of all five companies have been far less aggressive about their own compensation than is typical in the United States,” he wrote.
Yet again, Mr. Buffett spent little time talking about what he has long called Berkshire’s “elephant gun,” the vast cash hoard it amasses from its insurance operations that he has used to strike major transactions. In recent years, the conglomerate has favored using that money to buy back its own stock as a better way to generate higher returns for investors.
That pile grew to $163.3 billion by year end, but Mr. Buffett said he saw few opportunities to profitably spend that cash at scale. “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,” he wrote. “All in all, we have no possibility of eye-popping performance.”
Instead, Mr. Buffett emphasized Berkshire’s financial resilience. “I believe Berkshire can handle financial disasters of a magnitude beyond any heretofore experienced,” he wrote. “This ability is one we will not relinquish.”
As expected, Mr. Buffett offered a lengthy tribute to Mr. Munger, a fellow Omaha native who shared a love of investing. The two men were Berkshire’s biggest ambassadors with an often comedic buddy act: Mr. Buffett the persistent optimist, Mr. Munger the gimlet-eyed cynic.
In a lengthy introduction, Mr. Buffett praised Mr. Munger as the “architect” of the Berkshire business model of investing in good businesses at fair prices, an approach that made them billionaires and many of their longtime shareholders millionaires.
“Charlie never sought to take credit for his role as creator but instead let me take the bows and receive the accolades,” he wrote. “Even when he knew he was right, he gave me the reins, and when I blundered he never — never — reminded me of my mistake.”