Berkshire's Q4 operating profit soared 71%, exceeding expectations, with a significant increase in insurance profits, increased investment in Japan, and cash reserves reaching a record high | Financial Report Insights

Berkshire's fourth-quarter insurance profits surged, driving operating profits up 71%. While continuing to reduce stock holdings, cash reserves reached a record $334.2 billion. Buffett also indicated that he might "gradually" increase the stake in Japan's five major trading companies.

On Saturday, February 22, Berkshire Hathaway announced its fourth-quarter and full-year financial results:

Operating Profit: Fourth-quarter operating profit was $14.53 billion, exceeding the expected $9.87 billion, and soaring 71% year-on-year, setting a historical record, mainly due to the strong performance of the company's large insurance business and increased investment income.

Net Profit: Fourth-quarter net profit was $19.694 billion, compared to $37.574 billion in the same period last year.

Looking at the full-year performance for 2024:

• Operating Revenue: Total revenue for 2024 was $371.433 billion, compared to $364.482 billion in the same period last year, with market expectations of $371.953 billion.

• Operating Profit: Operating profit for 2024 was $47.437 billion, a year-on-year increase of 27%, also benefiting from the strong performance of its insurance business.

• Net Profit: Net profit attributable to shareholders was $88.995 billion, down from $96.223 billion in the same period last year, but far exceeding market expectations of $60.706 billion.

It is worth mentioning that operating profit is the metric Buffett values most, as it reflects the tangible growth of the diversified main businesses of its subsidiaries, while net profit includes "paper investment gains and losses that are meaningless during specific periods," which often fluctuate significantly.

Surge in Insurance Profits

The growth in fourth-quarter operating profit was mainly due to a significant increase in insurance investment profits. Against the backdrop of rising interest rates, insurance investment operating profit grew by 48%, reaching $4.1 billion, with annual profits hitting a record $9.02 billion. Fourth-quarter insurance underwriting operating profit also increased by 302% year-on-year to $3.41 billion, totaling $13.67 billion for the year.

Additionally, fourth-quarter BNSF operating profit was $1.28 billion, and Berkshire Hathaway Energy's operating profit was $729 million. Other holding business operating profit was $3.26 billion, while non-holding business operating profit was $695 million.

In his letter to shareholders, Buffett stated:

Berkshire's performance in 2024 exceeded my expectations, even though 53% of our 189 operating companies reported a decline in profits. With the increase in U.S. Treasury yields, we benefited from predictable large investment income, and we significantly increased our holdings of these highly liquid short-term securities. Driven by the performance of GEICO, our insurance business also achieved substantial profit growth

Selling Stocks, Continuing to Pause Buybacks

Berkshire Hathaway's financial report shows that as of December 31, 71% of its equity investments' total fair value is concentrated in American Express, Apple, Bank of America, Chevron, and Coca-Cola.

Investment income in the fourth quarter significantly slowed from $29.093 billion in the same period last year to $5.167 billion, with Berkshire drastically cutting its holdings in Apple and Bank of America over the past year.

The report indicates that Berkshire sold $10.1 billion worth of stocks in the fourth quarter of 2024, bought $3.4 billion, marking the ninth consecutive quarter of net stock sales. In the fourth quarter of 2024, Berkshire did not further reduce its holdings in Apple, but in the second and third quarters, Berkshire significantly reduced its Apple holdings. By the end of the third quarter, Berkshire's Apple shares had decreased from 905 million at the beginning of the year to 300 million, a decline of nearly 67%.

Buffett mentioned in the shareholder letter that the value of tradable stocks held in 2024 dropped from $354 billion to $272 billion, but the value of non-listed controlling stakes increased and remains well above the value of the tradable stock portfolio.

Regarding the reduction in holdings over the past year, Buffett stated in the shareholder letter:

Berkshire shareholders can rest assured that we will always invest the majority of their funds in stocks—primarily U.S. stocks, although many will have significant international businesses. Berkshire will never prefer ownership of cash equivalents over owning good businesses, whether controlled or partially owned.

Additionally, in the fourth quarter, Berkshire refused to repurchase its own stock for the second consecutive quarter, with only $2.9 billion repurchased in 2024, the lowest annual repurchase total since 2018. This indicates that Buffett believes the stock is trading above its intrinsic value, as Berkshire's market capitalization has hovered above $1 trillion since the end of last month.

Cash Reserves Increase for the 10th Consecutive Quarter, Reaching Record Highs

While reducing stock holdings, Buffett continued to increase cash reserves.

Berkshire Hathaway raised its cash position in the fourth quarter to $334.2 billion, a record high, with cash reserves increasing for the 10th consecutive quarter. Notably, cash accounted for 29% of total assets, a new high in decades.

Buffett's shareholder letter stated that there was a significant increase in short-term U.S. Treasury holdings in 2024, resulting in a foreseeable substantial increase in investment income.

Increasing Investments in Japan

Additionally, Berkshire Hathaway's annual report stated that it has increased investments in Japan. Buffett's shareholder letter indicated that Berkshire may "gradually" increase its stake in Japan's five major trading companies.

Buffett stated that Berkshire initially agreed to keep its stake in Itochu Corporation, Marubeni Corporation, Mitsui & Co., Mitsubishi Corporation, and Sumitomo Corporation below 10%. However, when its stake approached this limit, these companies agreed to "moderately relax" the ownership limit Buffett also stated that in the future, Berkshire will look for other ways to "efficiently cooperate" with these companies