BRK.B Berkshire Hathaway Inc

By Nicole Friedman 

The world's most famous investor had one of his worst years ever in 2018.

Warren Buffett's Berkshire Hathaway Inc. said Saturday it swung to a $25.4 billion loss in the fourth quarter due to an unexpected write-down at Kraft Heinz Co. and unrealized investment losses.

Berkshire posted operating earnings of $5.7 billion, up from $3.3 billion a year earlier, due to increased earnings from Berkshire's railroads, energy business and other segments. For the year, Berkshire posted $24.8 billion in operating earnings. That was a record high, Mr Buffett said in his annual letter to shareholders that was also released Saturday.

Mr. Buffett in his letter offered no hints about who will eventually succeed him as CEO. But he did offer praise for deputies Ajit Jain and Greg Abel, saying that decisions to elevate the two men last year into more prominent roles "were overdue."

Messrs. Jain and Abel were promoted in early 2018 to vice chairmen and now oversee many of Berkshire's day-to-day operations. One of the two men is expected to succeed Mr. Buffett as chief executive.

"Berkshire is now far better managed than when I alone was supervising operations," Mr. Buffett wrote.

Berkshire reported net earnings of $4 billion in 2018, down from $44.94 billion in 2017. Berkshire's 2017 earnings soared in the fourth quarter of 2017 due to changes in the U.S. tax law that lowered Berkshire's deferred tax obligations for stock investments that it currently holds.

Berkshire's earnings are unusually volatile because it holds large equity stakes in companies including Wells Fargo & Co. and Apple Inc. An accounting rule that went into effect last year requires Berkshire to include unrealized investment gains or losses in its net income.

Kraft Heinz contributed a $2.7 billion loss to Berkshire in 2018, compared to adding $2.9 billion to its earnings in 2017. Kraft Heinz on Thursday wrote down the value of some of its biggest brands, disclosed an investigation by federal securities regulators and slashed its dividend.

The company's book value per share rose 0.4% in 2018, the company said, compared with a -4.4% total return in the S&P 500, including dividends.

Mr. Buffett has traditionally encouraged shareholders to pay attention to Berkshire's book value over its market value, but he said in the letter that market value is now the more relevant metric.

Berkshire hasn't notably outperformed the S&P 500 in recent years. Berkshire hasn't done a major deal in three years, and Mr. Buffett has struggled to find reasonably priced large companies to buy. As Berkshire continues to grow and accumulate cash, Mr. Buffett is under pressure to make ever-larger deals to move the needle on its earnings. Berkshire's largest acquisition in 2018 was the $2.5 billion purchase of a New York medical malpractice insurer.

Berkshire's cash pile, which is mostly invested in Treasury bills, grew to almost $112 billion at year-end, marking the sixth straight quarter above $100 billion.

Mr. Buffett offered no specific guidance on how he may use his growing pile of cash. He expects to move "much of our excess liquidity into businesses that Berkshire will permanently own" but prices are still too high, he wrote. "We continue, nevertheless, to hope for an elephant-sized acquisition."

Berkshire repurchased a bit over $400 million of its stock in the fourth quarter, down from $928 million in buybacks in the third quarter. Investors were hoping Berkshire would spend a significant chunk of its cash buying back shares.

Some of Berkshire's 60-odd subsidiaries completed acquisitions, but those deals tend to be small. Berkshire spent $1 billion on bolt-on acquisitions in 2018, the company said, down from $2.7 billion the prior year.

Write to Nicole Friedman at nicole.friedman@wsj.com

(END) Dow Jones Newswires

February 23, 2019 09:20 ET (14:20 GMT)

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