Warren Buffett’s Berkshire Hathaway Reports Record Profits

OMAHA, Neb., 23 February 2025 – Warren Buffett’s annual letter to Berkshire Hathaway (NYSE: BRK.A, BRK.B) remains one of the most expected financial events each year, providing information on the company’s performance and investment strategy. This year’s letter reinforces Buffett’s long-standing philosophy: owning large companies is preferable to cash. Although Berkshire’s cash reserves were at a record level of $334.2 billion, Buffett made it clear that shares remain the company’s main objective.

Main aspects of Buffett’s letter

Buffett’s letter highlights several crucial aspects of Berkshire’s financial health and strategic direction:

• Record cash reserves: The company’s cash position hit an all-time high, exceeding the market capitalization of many major American corporations.
• Stock market outlook: Despite limited investment opportunities, Berkshire continues to prioritize equity ownership.
• Japanese investments: Buffett praised the growth and shareholder-friendly policies of Japan’s five major trading firms, in which Berkshire has expanded its stake.
• Operating earnings growth: The company’s core earnings rose by 27%, driven by insurance and investment income.
• Minimal stock buybacks: Buffett’s decision to halt share repurchases indicates he sees Berkshire stock as fairly valued.

Berkshire Investments Strategy: A quality approach

Buffett reiterated that Berkshire remains committed to investing in high-quality businesses. It acknowledged that while full acquisitions of exceptional companies are rare, investors can still buy shares of these companies on the open market. However, he warned that the real negotiations are difficult to find in the current market.

One of the notable updates is Berkshire’s investment in Japan. Since 2019, Berkshire has acquired interests in five major Japanese commercial companies: Itochu, Marubeni, Mitsubishi, Mitsui and Sumitomo. Berkshire initially committed to keeping its share below 9.9%, but after receiving the approval of the signatures, the company increased its assets. Buffett commended the companies for their efficient use of capital and their commitment to shareholder returns, indicating continued investment in Japan.

Financial results: Strong 2024

Despite the challenges, Berkshire published solid financial results for 2024:

• Net income: $89 billion, slightly lower than 2023’s $96.2 billion.
• Operating earnings: $47.4 billion, up from $37.35 billion in 2023.
• Fourth-quarter earnings: $14.5 billion, a 71% year-over-year increase.
• Cash reserves: Grew to $334.2 billion, up from $325.2 billion in Q3.

Buffett stressed that investors should focus on operating income rather than net income, which may fluctuate due to market volatility. The company’s insurance business has been a major engine of profit, benefiting from higher interest rates and better underwriting results.

Insurance: the Berkshire spine

The Berkshire insurance industry, including GEICO, Berkshire Hathaway Primary Group and Berkshire Hathaway Reinsurance Group, has achieved impressive results:

• Insurance investment income: Up 48% to $4.1 billion.
• GEICO’s turnaround: Underwriting earnings doubled to $7.8 billion.
• Insurance float: Grew to $171 billion, generating substantial investment returns.

Buffett accredited Todd Combs to lead the transformation of GEICO, which included best practices in subwriting and operational efficiency. The insurer also noted an increase in the number of decision makers in the last half of 2024.

Other major companies in Berkshire

Beyond insurance, Berkshire’s diversified portfolio includes railways, utilities, manufacturing and retail:

• Railroad (BNSF): Earnings declined 1% due to labor agreements and legal costs.
• Utilities (BHE): Operating profits surged 60%, benefiting from renewable energy investments.
• Retail & Manufacturing: Mixed performance, with the retail sector seeing a 19.2% decline in pre-tax earnings.

The utility segment, composed mainly of Berkshire Hathaway Energy (BHE), has produced good results. However, Berkshire remains cautious about any wildlife-related commitments that could affect future profitability.

Berkshire Stock and future performance

Despite Buffett’s reluctance to make major capital purchases in 2024, Berkshire’s stock worked well:

• BRK.A share price: Up 5.6% year-to-date, outperforming the S&P 500’s 2.2% gain.
• Moderate Buy rating: Analysts have assigned BRK.A and BRK.B a moderate buy rating.
• Price targets: $803,444 for BRK.A and $536 for BRK.B, signaling 11.78% and 11.96% upside potential, respectively.

Buffett’s disciplined approach to capital allocation remains unchanged. While acknowledging the difficulty of finding attractive investments, he assured shareholders that Berkshire’s financial strength was good for future opportunities.

“Often, nothing seems convincing; very few times, we kneel on opportunities,” wrote Buffett, explaining the company’s huge cash stocks. However, he reiterated that most Berkshire funds remain in stock.

As he approached his 94th anniversary, Buffett recalled that Greg Abel, Vice President of Non-Guarantees Operations, would eventually have him as CEO. Buffett expressed confidence in Abel’s leadership, comparing his decision with that of the late Charlie Munger.

With a solid balance sheet, disciplined investment strategy and strong operational activity, Berkshire Hathaway remains a financial centre. Buffett’s last letter points to a coherent message: patience, quality investment and prudent financial management are the pillars of long-term success.