Berkshire Hathaway net earnings rose 11% in fourth quarter

Warren Buffett’s conglomerate recorded $US90 billion net earnings for 2021.

Warren Buffett, CEO of Berkshire Hathaway, attending the annual Berkshire shareholders meeting in 2019. Picture: AFP

A growing economy propelled Berkshire Hathaway’s railroad, energy and consumer businesses, pushing net earnings up 11pc in the fourth quarter. And a powerful stock market nearly doubled the conglomerate’s investment gains for the full year.

Warren Buffett’s company reported $US90bn in net earnings in 2021, a record, thanks in part to its giant stock portfolio. Berkshire owns 5.6pc of Apple Inc., a stake valued at $US161.2bn at the end of the year – up more than $US40bn from the year before.

Mr Buffett, who has admonished his investors to pay little heed to investment gains, called the Apple investment one of Berkshire’s “four giants” in his annual letter to shareholders, noting the stake’s year-end market value exceeded that of all of the company’s other holdings save its sprawling insurance operations.

Operating earnings, which exclude some investment results, jumped 45pc to $US7.29bn in the quarter from $US5bn a year ago.

The Apple stake is “an acknowledgment of another pillar of growth at Berkshire,” said Cathy Siefert, an analyst with CFRA Research. “Tech is now an important part of Berkshire. Who’d have thunk it?” Bill Smead, whose money-management firm owns Berkshire shares, said he’s concerned that acknowledgment was a sign the conglomerate will hold its Apple stake for too long – as it had with its Coca-Cola Co. shares.

“The law of large numbers starts to get in the way,” he said. “Who’s left to buy the stock? Apple is a wonderful company. Coca-Cola is wonderful. It just got too big, and was overowned.” Mr Buffett’s letter celebrated Berkshire’s railroad (”the number one artery of American commerce”) and the green credentials (“the company has long been making climate-conscious moves”) of its energy division, which invests in renewables but also operates coal-fired power plants.

Mr Buffett also reminded shareholders of Berkshire’s large tax bill (the “invisible and often unrecognised financial partnership between government and American businesses.”) He wrote that Berkshire pays the US Treasury about $US9m a day in income taxes. Those tax payments reflect the company’s steady growth over many decades – a successful run, Mr Buffett wrote, made possible by Berkshire’s home in the US

Berkshire’s fourth-quarter net earnings attributed to shareholders rose to $US39.65bn, or $US26,690 per Class A share equivalent, from $US35.84bn, or $US23,015 a share, in the same period a year ago.

On an operating basis, Berkshire earned $US3.27 per Class B share equivalent in the fourth quarter, analysts said. That beat analysts’ average estimate of $US2.95 a share, according to S&P Global Market Intelligence.

For the full year, Berkshire reported $US89.80bn in net earnings attributable to shareholders, of which $US62.34bn were investment gains. In 2020, investment gains were $US31.59bn.

Berkshire’s railroad, Burlington Northern Santa Fe, reported record earnings in 2021. BNSF’s trains carried 535 million tons of cargo last year, more than any other carrier, Mr Buffett wrote.

Berkshire said BNSF’s operating revenue from consumer products – the largest category of freight it carries – rose 13.7pc in 2021. It attributed the growth to higher retail sales and e-commerce sales.

Berkshire also owns industrial manufacturers, retailers and auto dealerships. Many of those businesses posted higher revenue last year, reflecting the economy’s broad recovery from Covid-19 disruption.

“It’s an all-in bet on the US economy,” Mr Smead said. “The operating performance was really terrific.” Take Nebraska Furniture Mart, the home-furnishings retailer Berkshire controls, Mr Smead said. “Think of how well they did with people buying homes who had never bought homes before,” he said.

An accounting-rule change in recent years has meant that Berkshire’s earnings often reflect the larger performance of the stock market, while Mr Buffett has said operating earnings more accurately reflect the firm’s business operations.

The S&P 500 rose 27pc in 2021, the index’s third consecutive year of double-digit growth; on a total return basis, which includes dividends, the benchmark notched a 28.7pc gain. Berkshire’s stock edged it out, with an annualised total return of 29pc.

Berkshire’s Class A shares closed Friday at $US479,345, up 5.5pc for the year. Class B shares, which have risen 6.1pc in 2022, closed at $US319.24 on Friday.

The company produced annualised gains of 20pc from 1965 to 2020, outperforming the S&P 500’s 10.2pc gains, including dividends. In recent years, Berkshire’s performance has slipped. The company’s annualised total returns over the past five years were about 13pc, compared with 18pc for the S&P 500.

Berkshire made no big acquisitions in 2021, though the company remains an active buyer of its own stock; Berkshire spent $US51.7bn on repurchases in the past two years, Mr Buffett wrote in his annual letter to shareholders.

“Periodically, as alternative paths become unattractive, repurchases make good sense for Berkshire’s owners,” Mr Buffett wrote. Berkshire spent $US6.9bn on repurchases during the fourth quarter. As of Feb. 23, Mr Buffett wrote, Berkshire had spent another $US1.2bn on buybacks in 2022.

The company ended 2021 with $US146.7bn in cash, cash equivalents and short-term Treasury bills.

The Wall Street Journal