Billionaire reports record quarterly and annual profit for Berkshire Hathaway, in large part due to Congress’s tax code changes.
Warren Buffett on Saturday reported a record quarterly and annual profit for his Berkshire Hathaway conglomerate, thanks in part to a $29.1bn boost “delivered” by the Republican tax cut.
In his annual letter to shareholders, the billionaire investor wrote: “Berkshire’s gain in net worth during 2017 was $65.3bn.”
“But,” he added, “2017 was far from standard: a large portion of our gain did not come from anything we accomplished at Berkshire.
“The $65bn gain is nonetheless real – rest assured of that. But only $36bn came from Berkshire’s operations. The remaining $29bn was delivered to us in December when Congress rewrote the US tax code.”
Buffett also lamented his inability to find big companies to buy, and said his goal was to make “one or more huge acquisitions” of non-insurance businesses to bolster results.
Finding things to buy at a “sensible purchase price” had become a challenge, he wrote, and a major reason Berkshire was awash with $116bn of low-yielding cash and government bonds.
Buffett blamed a “purchasing frenzy” binge by deal-hungry chief executives employing cheap debt. Berkshire typically pays all cash for acquisitions.
“Our smiles will broaden when we have redeployed Berkshire’s excess funds into more productive assets,” Buffett wrote. “Berkshire’s goal is to substantially increase the earnings of its non-insurance group. For that to happen, we will need to make one or more huge acquisitions.“
It has been more than two years since Berkshire made a major purchase, the $32.1bn takeover of aircraft parts maker Precision Castparts.
Last month, Buffett gave greater oversight of Berkshire’s non-insurance businesses such as the BNSF railroad, Precision Castparts and Dairy Queen ice cream to the energy executive Gregory Abel, while the insurance specialist Ajit Jain added supervision of insurance operations such as the Geico auto insurer.
Both are considered candidates to eventually replace Buffett, 87, as Berkshire’s chief executive. Many investors consider Abel, a decade younger than Jain, the frontrunner.
Fourth-quarter net income increased roughly fivefold to $32.55bn, or $19,790 per class A share, from $6.29bn, or $3,823 per share, a year earlier, while annual profit rose 87% to $44.94bn.
Those increases, however, masked declines in operating profit, which Buffett considers a better gauge of overall performance, and which fell 18% to $14.46bn.
A major reason for that decline was a $2.22bn loss from insurance underwriting, Berkshire’s first full-year deficit since 2002, hurt by hurricanes Harvey, Irma and Maria and wildfires in California.
However, Buffett said “no company comes close” to his conglomerate in its ability to financially withstand even a mega-catastrophe causing $400bn of insurance losses.
Buffett said the odds of a giant hurricane, earthquake or other conflagration inflicting unprecedented, catastrophic damage in any year is just 2%, but that in such an event Berkshire would lose only about $12bn, a sum more than offset by annual profits from its non-insurance businesses.
The lower tax rate also contributed to a 23% full-year boost in Berkshire’s book value, which measures assets minus liabilities and which Buffett considers a good indicator of Berkshire’s net worth, to $211,750 per class A share.
Insurance float, or premiums collected before claims are paid, which gives Buffett more money to invest, was about $114bn at year end.