Berkshire Hathaway (BRKA)’s operating earnings fell during the fourth quarter of 2022, as inflation pressures and high interest rates bogged down businesses at the company run by investor Warren Buffett, though the full year profits reached a “record.”
Berkshire’s operating profit, or the total profit from core operations before tax and interest, was $6.7 billion in the fourth quarter last year, Buffett said in his highly-anticipated annual shareholder letter Saturday. That was a nearly 8% drop from the company’s third quarter earnings of $7.8 billion.
For the full year 2022, however, Berkshire Hathaway operating earnings reached what it called a “record” – $30.8 billion in 2022, topping the $27.5 billion in the prior year.
Operating earnings are Buffett’s preferred measure of profitability.
“Some of it had to do with currency fluctuations and things like that,” said Steven Check, president of Check Capital Management. “So this is a short term noise. I would not be concerned at all.”
Investors regularly pore over the annual shareholder letter from Buffett when it is released each year, not just to learn how the company did in the prior year but to see what insights the 92-year-old “Oracle of Omaha,” has on current economic conditions and what he expects in the future.
Berkshire Hathaway bought back $2.6 billion of its own stock in last year’s fourth quarter, bringing the total it paid to repurchase its shares in 2022 to $7.9 billion. The company also bought back shares in 2021, repurchasing $6.9 billion of the company’s stock during that year’s fourth quarter, which helped boost the company’s earnings per share.
At the end of 2022, the company’s cash level reached about $125 billion.
“When you are told that all repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive),” Buffett said in this year’s letter, in a directly addressing critics of the practice.
“That was a direct comment essentially, to Biden and others that are of that mindset that buying back stock is harmful in some way to the country,” said Check.
In his State of the Union address February 7, Biden called for quadrupling the tax on stock buybacks. The president has been a vocal critic about the practice companies use to return money to shareholders.
Buffett believes stock buybacks benefit existing shareholders, and is well aware of the disapproval. “As for the future, Berkshire will always hold a boatload of cash and U.S. Treasury bills along with a wide array of businesses,” Buffett said in the shareholder letter. “We will also avoid behavior that could result in any uncomfortable cash needs at inconvenient times, including financial panics and unprecedented insurance losses.”
Investors also were anticipating Buffett’s thoughts on high interest rates and inflation. The billionaire has lived through many eras of high inflation, and was particularly concerned in the 70s and 80s, when rising oil prices caused an inflationary shock.
Steven Check noted that theshareholder letter had “about one sentence” that referenced those issues. It said, on page 8, that “Berkshire also offers some modest protection from runaway inflation, but this attribute is far from perfect. Huge and entrenched fiscal deficits have consequences.”
“He pointed out that Berkshire is somewhat of a hedge against inflation, but that’s about it,” Check said. “Better than owning a bond.”
CNN’s Paul R. La Monica contributed to this report.
