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Berkshire Hathaway Reports A Record Yearly Profit And Extends But Lowers Share Repurchases

Berkshire Hathaway Reports A Record Yearly Profit And Extends But Lowers Share Repurchases
Berkshire Hathaway Inc, headed by Warren Buffett, reported record profits for the fourth-quarter profit on Saturday, buoyed by increases in several of its businesses and common stock investments such as Apple Inc, and said yearly earnings hit a new high.
Berkshire also demonstrated newfound confidence in its own shares, repurchasing $6.9 billion in the quarter and increasing total buybacks to a record $27 billion in 2021.
However, the rate of buybacks has slowed, with Berkshire, whose stock price is only 2 per cent below its all-time high, repurchasing only $1.2 billion in stock in 2022.
Buffett stated in his annual letter to Berkshire shareholders that stock buybacks make "excellent sense" when alternatives such as buying entire companies or additional stocks look "unappealing."
He also voiced optimism in Berkshire's dozens of operational businesses, such as the BNSF railroad and Geico car insurance, despite the fact that it had been six years since a big purchase, allowing Berkshire's cash holding to grow to $146.7 billion.
"Today, internal opportunities deliver far better returns than acquisitions," Buffett wrote.
The firm also reported a 45 per cent year on year rise in operating income to $7.29 billion, or nearly $4,931 per Class A share, from $5.02 billion.
According to Refinitiv I/B/E/S, analysts predicted an operating profit of $4,251 per Class A share on average.
"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 predicted that top-line and margin expansion will be more difficult in 2022 due to inflationary pressures such as increasing gasoline and other input prices, as well as geopolitical pressures. "
Operating income increased by 25 per cent to $27.46 billion in 2021, breaking the previous high of $24.78 billion achieved in 2018.
Net income more than quadrupled to $89.8 billion, driven by a more than one-third increase in the stock prices of Berkshire's top stock investments, Apple, Bank of America Corp, and American Express Co.
Net income, according to Buffett, is a deceptive performance indicator since it incorporates gains and losses from stock ownership regardless of what Berkshire buys or sells.
Quarterly operational results benefitted from improved property and casualty insurance operations, which were offset by growing accident claims at Geico's car insurer as individuals drove more.
According to James Shanahan, an Edward Jones & Co analyst who rates Berkshire "buy," insurers are rising premiums to mitigate crash losses, and increased premiums should be a "quite powerful trigger" for Geico's turnaround in 2022.
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 major subsidiaries, increased earnings by 13 per cent, owing to rising transportation volumes of consumer goods, industrial goods, and coal.
Profit at Berkshire Hathaway Energy grew 11 per cent as companies such as PacifiCorp and MidAmerican Energy reported improved margins and enhanced income tax advantages.
Precision Castparts, an aviation and industrial parts subsidiary that suffered a $9.8 billion writedown in 2020 as plane manufacturing and air traffic decreased, increased full-year pretax profitability by 79 per cent after cutting more than 13,000 positions, despite sales falling 8 per cent.
Precision's aerospace sector is unlikely to recover quickly, according to Berkshire, citing supply chain disruptions and Boeing Co's "large inventory levels" following quality difficulties with its 737 and 787 planes.
Berkshire's share price increased 30 per cent in 2021, outperforming the S&P 500's 29 per cent gain after dividends and ending a two-year period of substantial underperformance relative to that index. In 2022, they are also outperforming.

Christopher J. Mitchell

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