In annual letter, Buffett writes Berkshire Hathaway had a "good year" in 2022

Berkshire Hathaway had a good year in 2022.

That was Warren Buffett’s assessment outlined in the Berkshire chairman’s annual letter to the conglomerate’s shareholders Saturday morning. Berkshire’s operating earnings produced a record of $30.8 billion. That record income excludes capital gains or losses from the company’s stock holdings.

Buffett’s assessment comes even as the conglomerate got caught up in the stock market’s downswing. Berkshire reported a net earnings loss of $22.8 billion in 2022 — a figure that reflects $53.6 billion in investment losses.

But viewing the health of Berkshire only through quarterly or even annual reports is misleading, Buffett wrote, hence his focus on highlighting Berkshire’s operating earnings as a clearer picture of the company’s fiscal health.

Another contributor to Berkshire’s strong 2022 was its $11.6 billion acquisition of insurance conglomerate Alleghany Corporation. Berkshire’s purchase of Alleghany increased Berkshire’s insurance float during 2022 from $147 billion to $164 billion.

Buffett has long cited float — the money collected by premiums — as a major component of Berkshire’s success, going back to its acquisition of National Indemnity in 1967. Indeed, Buffett noted Saturday that since the National Indemnity acquisition, Berkshire’s float has increased 8,000-fold through acquisitions, operations and innovations.

“Though not recognized in our financial statements, this float has been an extraordinary asset for Berkshire,” Buffett wrote.

It wasn’t all good news in the insurance sector. Geico dragged down Berkshire’s holdings in the underwriting segment as the insurer lost $1.88 billion last year. Earnings generated by Berkshire Hathaway Primary Group and Berkshire Hathaway Reinsurance Group weren’t enough to put the conglomerate’s insurance underwriting segment in the black. The $98 million deficit came after the same sector recorded nearly $1 billion in profit the year prior.

CFRA equity analyst Cathy Seifert said an increase in car accidents and subsequent claims that have gotten more severe and expensive were a major drag on what was an underwhelming year in that field.

“It’s not going to go away” as inflationary pressures also take hold, she said.

Buffett gave a slight nod to Berkshire’s share repurchases. Buffett wrote that Berkshire repurchased 1.2% of the company’s outstanding shares. Berkshire also benefited from share repurchases carried out by Apple and American Express, two of the company’s major holdings.

Berkshire’s stock buyback slowed in 2022 compared to the previous two years when the company repurchased 9% of shares that were outstanding at year end 2019.

Buffett wrote Berkshire repurchases shares when it’s valuable to the company and its shareholder. To that end, Buffett lambasted those who criticize the general practice of repurchasing shares.

Stock buybacks have increasingly become a target for critics, who see the practice as a way to steer profits into shareholders’ pockets — particularly those of corporate executives who are large shareholders — rather than investing in the company.

Those critics include President Joe Biden, who signed into law a 1% tax on stock buybacks as part of the Inflation Reduction Act. The tax went into effect in January. More recently, Biden proposed quadrupling that tax in his State of the Union address earlier this month.

“When you are told that all repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive),” Buffett wrote without mentioning Biden by name.

Edward Jones analyst James Shanahan and Seifert praised Buffett for pushing back. By defending share repurchases, Shanahan said Buffett was also defending capitalism.

Both analysts were disappointed by the length of Buffett’s letter. Seifert found Buffett’s lack of specifics on Berkshire Hathaway’s holdings frustrating given the company’s vast portfolio.

“They do what they have to do to satisfy their regulatory requirements and no more,” Seifert said.

Buffett also sought to highlight Berkshire’s record and willingness to pay its share of federal taxes. He noted that, during the decade ending in 2021, Berkshire via the corporate income tax contributed $32 billion of the $32 trillion collected by the U.S. Department of the Treasury.

Had there been roughly 1,000 taxpayers in the nation matching Berkshire’s tax payments, he said, “no other businesses nor any of the country’s 131 million households would have needed to pay any taxes to the federal government. Not a dime.”

Buffett said Berkshire hopes and expects to pay more taxes during the next decade.

Buffett’s tax talk rang hollow to Shanahan, who noted that Berkshire is structured in such a way to limit its tax burden.

“It’s a really big company. And big companies have a lot of revenues and earnings so of course the tax bill is going to be large,” Shanahan said. “I don’t think anyone would accuse Warren Buffett of wanting to overpay.”

Buffett declined to offer a near-term economic and market forecast, adding that he and Vice Chairman Charlie Munger believe such forecasts “are worse than useless.”

“Our job is to manage Berkshire’s operations and finances in a manner that will achieve an acceptable result over time and that will preserve the company’s unmatched staying power when financial panics or severe worldwide recessions occur,” Buffett wrote.

The annual Berkshire Hathaway shareholder meeting will be held in Omaha on May 6.