No. of Recommendations: 34
My summary of the annual report ;-)
Berkshire Hathaway reported the company’s net worth during 2024 increased by 16%, or $88.1 billion, to $649.4 billion with book value equal to about $451,507 per Class A share as of 12/31/24. Berkshire boasts the largest shareholders’ equity of any U.S. company. In his letter to shareholders, Warren Buffett, CEO, reported that Berkshire performed better than he expected in 2024, even though 53% of the company’s 189 operating businesses reported a decline in earnings. Berkshire was “aided by a predictable large gain in investment income as Treasury Bill yields improved and we substantially increased our holdings of these highly-liquid short-term securities.”
On a GAAP basis, Berkshire reported net earnings of $89.0 billion during the year, an 8% decline from $96.2 billion in the prior year. Investment gains and losses from changes in the market prices of Berkshire’s substantial equity investments will produce significant volatility in earnings. Berkshire’s five major equity investment holdings which represent about 71% of total equities held as of year end, include American Express at $45.0 billion (which charged 58% higher during the year or $16.6 billion); Apple at $75.1billion (which Buffett pared back by slicing its position by two-thirds during the year, although no more sales were made in the fourth quarter); Bank of America at $29.9 billion (with Buffett making withdrawals of more than a third of the position during the year); Coca-Cola at $24.9 billion (which popped 6% higher or $1.3 billion during the year) and Chevron at $17.2 billion (which slid 9% lower or $1.6 billion during the year including a 6% trimming of the position.)
During 2024, Berkshire’s revenues rose 2% to $371.4 billion and operating earnings jumped 27% to $47.4 billion primarily due to the strong rebound in the company’s insurance businesses. Strong performance at Geico led the way with higher average premiums, lower claims frequencies and improved operating efficiencies. In his annual shareholder letter, Buffett highlighted what he called the “spectacular” improvement at Geico during 2024, and praised its CEO, Todd Combs, for having “reshaped Geico in a major way.”
During the year, Berkshire’s insurance businesses underwriting earnings rose 66% to $9.0 billion despite significant after-tax losses of $1.2 billion from Hurricanes Milton and Helene and accruals in connection with a bankruptcy settlement agreement related to a non-insurance affiliate. Estimated pre-tax losses from the Southern California wildfires of approximately $1.3 billion will be reflected in first quarter 2025 results. Insurance investment income increased 43% during the year to a whopping $13.7 billion, driven by higher interest income from short-term investments in U.S. Treasury Bills. The float of the insurance operations rose 1%, or $2 billion, during the year to end at approximately $171 billion. Thanks to insurance underwriting gains in 2024, the cost of this float was negative.
Burlington Northern Santa Fe’s revenues dipped 0.5% during the year to $23.4 billion. Average revenue per car/unit declined 6.6% due to lower fuel surcharges and business mix changes, however, this was mostly offset by a 6.5% increase in car/unit volumes during the year led by 16% growth in consumer products volume due to higher intermodal shipments from west coast imports and a new intermodal customer. Net earnings rolled 1% lower to $5.0 billion during the year primarily due to higher taxes.
Berkshire Hathaway Energy reported revenues increased 1% during the year to $26.3 billion with net earnings charging 60% higher to $3.7 billion, reflecting comparative declines in litigation-related charges affecting the U.S. utilities from the wildfires and higher earnings from natural gas pipelines. Cumulative wildfire loss payments by PacifiCorp were approximately $1.2 billion through 12-31-24 of which $533 million were paid in 2024. Estimated unpaid liabilities for the wildfires were approximately $1.54 billion as of year end.
Berkshire’s Manufacturing businesses reported revenues increased 2% to $77.2 billion for the year with operating earnings up 4% to $11.9 billion. The Industrial Products segment generated a 3% increase in revenues to $35.8 billion with operating earnings rising 6% to $6.0 billion thanks to improvements at Precision Castparts amid the higher demand for aerospace products and higher volumes and lower raw material costs at Lubrizol. The Building Products segment revenues increased 2% to $26.5 billion but operating earnings decreased 1% to $4.1 billion. The decline in earnings primarily reflected lower earnings from financial services at Clayton Homes due to increased insurance claims from weather events, increased loan loss provisions and higher interest expenses. The Consumer Products segment revenues increased 2% to $14.9 billion with operating earnings jumping 11% to $1.7 billion. The higher revenues were generated by Forest River, Duracell and Brooks Sports partially offset by lower revenues from Fruit of the Loom, Garan and Richline. The increase in earnings was driven by the increase in earnings from apparel and footwear and Duracell, partially offset by lower earnings from Jazwares due in part to reduced orders from retailers.
Service and Retailing revenues decreased 4% during the year to $138.7 billion with pre-tax earnings decreasing 19% to $4.9 billion. The Service group revenues were relatively unchanged at $20.7 billion with pre-tax earnings down 23% to $2.3 billion. The earnings decline reflected the impact of lower sales and price competition at TTI, a distributor of electronic components, whose earnings plummeted 51%. Excess inventory levels within supply chains contributed to lower customer demand at TTI. Earnings were also lower at aviation services and XTRA due to increased costs. The Retailing group revenues were down 1% to $19.2 billion during the year with pre-tax earnings down 19% to $1.4 billion. Nearly all Berkshire retailers generated lower earnings in 2024 compared to 2023, reflecting challenging business conditions that contributed to reduced sales and increased operating expenses. During 2024, Pilot Travel Centers’ revenues traveled 17% lower to $46.9 billion due to lower average fuel prices and a decline in volume from non-core fuel additives with pre-tax earnings skidding 42% lower to $614 million reflecting higher operating costs. McLane’s revenues declined 1% to $51.9 billion due to lower unit volumes primarily in the restaurant business, while earnings trucked 39% higher to $634 million thanks to higher gross sales margin rates.
Berkshire’s balance sheet continues to reflect significant liquidity and a very strong capital base of $649.4 billion as of 12/31/24. Excluding railroad, energy and utility investments, Berkshire ended the year with $648.9 billion in investments allocated approximately 41.9% to equities ($271.6 billion), 2.4% to fixed-income investments ($15.4 billion), 50.9% in cash and short-term investments ($330.8 billion or $318 billion net of a $12.8 billion payable for U.S. Treasury Bills) and 4.8% in equity method investments ($31.1 billion), which includes 27.2% ownership of Kraft Heinz and 28.2% ownership of Occidental Petroleum. While Berkshire holds an extraordinary cash position of greater than $300 billion, Buffett pointed out that the great majority of Berkshire’s investments remain in equities (both marketable securities and non-quoted controlled equities). Buffett added, “Berkshire shareholders can rest assured that we will forever deploy a substantial majority of their money in equities—mostly American equities although many of these will have international operations of significance. Berkshire will never prefer ownership of cash-equivalent assets over ownership of good businesses, whether controlled or only partially-owned.”
Free cash flow declined 61% during the year to $11.6 billion which reflected $28.5 billion of income tax payments derived from taxable gains on sales of equity securities, including significant sales of Apple and Bank of America. Sales of equity securities produced taxable gains of $101.1 billion (or $79.6 billion in realized gains after tax) during 2024. During the year, capital expenditures dipped 2% to $19.0 billion, which included $12.7 billion for BNSF and BHE, its railroad and utility and energy units. Berkshire expects capital expenditures in 2025 for BNSF and BHE to approximate $14.0 billion.
During the year, Berkshire paid cash of $9.2 billion to acquire equity securities and received proceeds of $143.4 billion from the sale of stocks, including the significant paring of Apple and Bank of America. Berkshire purchased a net $124.8 billion in Treasury Bills and fixed-income investments during the year. In January 2024, Berkshire acquired the remaining noncontrolling interests in Pilot for approximately $2.6 billion which brought Berkshire’s ownership of Pilot up to 100%. In addition, BHE repurchased shares of its common stock for $2.9 billion from certain non-controlling shareholders which increased Berkshire’s ownership of the utility operation from 92% to 100%.
Berkshire repurchases its shares at prices below Berkshire’s intrinsic value, as conservatively determined by Warren Buffett. During 2024, Berkshire repurchased $2.9 billion of its common stock. No shares were repurchased in the third or fourth quarters. Berkshire’s swelling cash hoard to a record $331 billion and lack of share repurchases signals that Buffett likely believes that many stocks, including Apple, Bank of America and Berkshire’s stock, itself, are fairly valued at current price levels.
