Andrew Bary

Berkshire Hathaway's fourth-quarter earnings were excellent but not quite as strong as they looked because of a one-time currency benefit.

It will be interesting to see how investors react Monday to the earnings, annual report, and Warren Buffett's annual shareholder letter released on Saturday.

Berkshire's Class A stock, which finished Friday at $718,750, is just below a recently hit record and the company is valued at over $1 trillion. The shares are up 6% so far this year, triple the gain in the S&P 500 index, after narrowly topping the index's 25% total return in 2024.

The key positive was the earnings. One negative was the continued lack of share repurchases, a sign that Berkshire CEO Buffett doesn't think the stock is cheap.

Another negative is Buffett's days as CEO are numbered. Buffett, 94, wrote "it won't be long before Greg Abel replaces me as CEO." Berkshire executive Greg Abel is Buffett's likely successor -- a decision that will be made by the Berkshire board.

Berkshire's operating profit after taxes surged 71% to $14.5 billion, a new quarterly record. They amounted to about $10,000 per class A share, way ahead of the FactSet consensus of under $7,000.

The fourth-quarter earnings were powered largely by strong insurance results and higher interest income on Berkshire's record cash holdings, which totaled $334 billion at year-end.

"We attribute the strong improvement primarily to insurance underwriting result," wrote Edward Jones analyst Jim Shanahan.

Profit was boosted by a one-time currency gain of $1.2 billion after taxes. That reflected a rise in the dollar, which cut the value of Berkshire's yen debt used to finance its $23.5 billion holding of Japanese stocks, plus other foreign currency debt.

Adjust for the currency effect and operating earnings were up a still-impressive 46% to $13.3 billion, Barron's estimates.

Most of the strength was at Berkshire's Geico auto-insurance unit and reinsurance operations.

Geico's pretax underwriting profit more than doubled to $7.8 billion in 2024. Buffett lauded Todd Combs, the CEO of Geico for the past five years, for the "spectacular" improvement in 2024 profits. Geico's underwriting profit, however, may have peaked given what likely was a record profit margin of almost 20% in 2024 -- 5% is more common in the industry.

The rest of the earnings story was mixed. Profits were down in the fourth quarter at the Burlington Northern Santa Fe railroad, higher at Berkshire's big utility business, Berkshire Hathaway Energy, and flat in a broad catchall bucket of "other controlled businesses" including manufacturing.

Buffett noted in the letter that 53% of its 189 operating businesses had a decline in earnings during 2024.

The stock isn't cheap, trading for about 1.6 times the year-end 2024 book value that Barron's estimates at around $452,000 a share. A range of 1.4 to 1.5 book has been more common in recent years.

That high-ish valuation may be why Buffett, who determines the pace of stock buybacks, has been out of the market for Berkshire stock since last May.

Buybacks last year of $2.9 billion were the lowest since 2018 and down from $9 billion in 2023 and the record $27 billion in 2021.

Many people invest in Berkshire because of Buffett, viewing him as an extraordinary steward of capital. An issue is whether they will be as comfortable with Abel, who could become CEO in the next year or two.

Write to Andrew Bary at andrew.bary@barrons.com

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February 23, 2025 15:03 ET (20:03 GMT)

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