Berkshire Hathaway's Profit Rises on Improving Economy
Conglomerate Posts $19.5 Billion in 2013 Earnings
Warren Buffett and his business partner Charlie Munger have long been bullish on the U.S., building a "rock-solid foundation" for Berkshire Hathaway Inc. BRKB +1.05% with calculated bets on the country's economic future.
In 2013, those efforts paid off handsomely for Berkshire shareholders as the gigantic conglomerate posted record annual profits, aided by a generous tailwind from the improving U.S. economy.
Warren Buffett's Berkshire Hathaway said fourth-quarter and full-year revenue jumped as the giant conglomerate's business benefitted from an improving U.S. economy. Bloomberg News
"Indeed, who has ever benefited during the past 237 years by betting against America?" Mr. Buffett wrote in his annual letter to shareholders, released Saturday along with Berkshire's fourth-quarter and annual report. The "dynamism embedded in our market economy will continue to work its magic. America's best days lie ahead."
Berkshire, which owns a massive stock portfolio and more than 80 operating businesses across manufacturing, energy, retail and insurance, is benefiting from the housing recovery, stronger consumer and business spending, and the oil-drilling boom.
Together, these businesses brought in $182.5 billion in annual revenue, beating the average estimate of analysts polled by Thomson Reuters. For the full year, net earnings were $19.5 billion, compared with $14.8 billion for 2012. Per-share book value, a measure of assets minus liabilities that is Mr. Buffett's preferred yardstick for measuring net worth, grew 18.2% during the year—a lofty gain that still lagged the performance of the Standard & Poor's 500-stock index, which the billionaire investor says he hopes to beat every year.
"On the operating front, just about everything turned out well for us last year —in certain cases very well," the billionaire investor wrote in his letter.
For the fourth quarter, Berkhire's net income jumped 9.6% to nearly $5 billion, helped partly by gains at its insurance operations. Berkshire owns auto insurer Geico as well as large reinsurance businesses, both of which are core operations that have propelled the company's growth from an ailing textile manufacturer in the 1960s to a diversified holding company with a market capitalization of $282 billion.
Mr. Buffett uses the insurance premiums it collects from customers upfront to invest for Berkshire's benefit. Berkshire can use this money, which Mr. Buffett calls "float," because insurance claims are typically paid much later. In 2013, Berkshire's float grew to $77.2 billion. Last year, Berkshire insurance business also generated about $3.1 billion in underwriting profit, its 11th consecutive year of earning such a profit.
Revenue and net earnings at one of Berkshire's biggest units, the freight railroad Burlington Northern Santa Fe Corp., rose to $22 billion and $3.8 billion, respectively.
Berkshire's "Powerhouse Five"—a group of large non-insurance businesses—made $10.8 billion in pretax profit last year, up from $758 million in 2012, Mr. Buffett wrote in his letter. This group includes Burlington Northern, utility company MidAmerican, chemicals maker Lubrizol and industrial companies Marmon and Iscar. Earnings for these five companies could increase by $1 billion before taxes if the U.S. economy continues to improve, Mr. Buffett said.