By Jonathan Stempel

(Reuters) – Warren Buffett’s Berkshire Hathaway on Saturday posted its second straight record annual operating profit, with its insurance business benefiting from improved underwriting and higher income from investments as interest rates rose.

Net income also reached a record $96.2 billion, as the rising stock market boosted the value of Berkshire’s $354 billion equity portfolio, half of which is in Apple.

In his annual letter to Berkshire shareholders, Buffett said Berkshire’s insurance businesses performed “exceptionally well” – among them, Geico, where better underwriting quality helped it more than reverse year-earlier losses.

This helped offset declining fourth-quarter and full-year profit at the BNSF railroad, where rising wages and costs for upkeep increased as revenue fell, and Berkshire Hathaway Energy, beset by wildfire litigation and a tougher regulatory climate.

Buffett nevertheless assured investors that his approximately $903 billion conglomerate’s “extreme fiscal conservatism” – including a now-record $167.6 billion cash stake – would serve them well.

Operating profit rose 28% to $8.48 billion, or about $5,884 per Class A share, in the fourth quarter, topping the average analyst forecast for $5,471 per share according to LSEG IBES.

For the year, operating profit rose 21% to $37.4 billion.

“Results reflect the value of holding a diversified collection of operating businesses,” said Edward Jones analyst Jim Shanahan.

He said Geico benefited from a willingness to cede market share by writing fewer risky policies, while also cutting advertising expenses.

The cash stake helped Berkshire’s insurance businesses, which have $169 billion of so-called “float,” generate 38% more investment income in the quarter, as the Federal Reserve boosted short-term interest rates to curb inflation.

Results also included some of Occidental Petroleum’s earnings, from Berkshire’s roughly 28% stake in the oil company.

Buffett said Berkshire plans to keep its stake indefinitely but has “no interest” in buying all of Occidental. Berkshire is also a big investor in oil company Chevron.

“He is keeping a portfolio that is massively defensive and earning interest, and is buying oil stocks,” said Bill Smead, a longtime Berkshire investor who runs Smead Capital Management in Phoenix.

‘COSTLY MISTAKE’

Fourth-quarter net income more than doubled to $37.57 billion, or $26,043 per Class A share, while the $96.2 billion annual profit topped the old record $89.9 billion from 2021.

Buffett considers net results misleading because they include gains and losses on investments that Berkshire has not sold.

Berkshire also spent about $2.2 billion in the fourth quarter repurchasing its own stock, and roughly $600 million more in the first six weeks of 2024.

But the cash stake grew in part because Berkshire was a net seller of stocks, selling $24.2 billion more than it bought in 2023.

It has been quietly building one or more holdings after obtaining U.S. Securities and Exchange Commission approval for confidentiality so that other investors will not copy Buffett while he is buying.

Some analysts have said those holdings could come from the bank, insurance and finance sector, where Berkshire invested about $3.6 billion in last year’s second half.

Buffett said BNSF’s margins have fallen behind those at its five major rivals since Berkshire bought the railroad in 2010, but that “a century from now, BNSF will continue to be a major asset of the country and of Berkshire. You can count on that.”

He also acknowledged making a “costly mistake” in not considering changes in the regulatory environment for utilities, including from climate change.

Buffett said it may also take years to know Berkshire’s final bill from wildfires in Oregon and northern California, where it has already racked up $2.4 billion of charges.

Berkshire’s dozens of businesses also include industrial parts and chemical companies, a big real estate brokerage, and retail brands such as Dairy Queen ice cream, Fruit of the Loom underwear and See’s candies.

Its stock has outperformed the market in 2024, rising 16% compared with the Standard & Poor’s 500’s 7% gain, and set a record on Friday.

(Reporting by Jonathan Stempel in New York; Editing by Ira Iosebashvili, Tomasz Janowski and Diane Craft and Marguerita Choy)

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