How Warren Buffett Led Berkshire Hathaway (NYSE: BRK.A, BRK.B) to Record Profit in 2013

Buoyed by a recovering U.S. economy, Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) posted a record profit in 2013 and is upbeat about the future.

Run by the iconic Warren Buffett since 1965, Berkshire has grown from a textile manufacturing company to now include 80-plus businesses that run the gamut from insurance to railroads to utilities to ice cream. The Omaha, Neb.-based conglomerate consists of some $117.5 billion of a variety of stocks.

Berkshire's 2013 profit hit $19.5 billion - up 32% from 2012's $14.8 billion profit. 

"America's best days lie ahead," Buffett said in his annual letter to Berkshire shareholders released March 1. "Charlie and I have always considered a 'bet' on ever-rising U.S. prosperity to be very close to a sure thing," he added, referring to his 90-year-old Berkshire confidant and right-hand man, Vice Chairman Charlie Munger. "Though we invest abroad as well, the mother lode of opportunity resides in America."

Buffett confirmed he continues to hunt for more sizable ("elephant") acquisitions, after two recent big American purchases: $5.6 billion for Nevada utility NV Energy and $12.25 billion for ketchup maker H.J. Heinz Co.

Following are highlights from Q4 and full fiscal 2013, as well as key comments from the Oracle of Omaha.

Behind Berkshire's (NYSE: BRK.A, BRK.B) Best-Ever Full-Year Profit

  • For Q4 2013, net profit rose roughly 10% to $4.99 billion, or $3,035 per Class A share. Operating profit rose 34% to $3.78 billion, or $2,296.
  • Full-year profit climbed 32, or $11,850 per Class A share. Operating profit jumped 20% to $15.16 billion, or $9,211 per share.
  • Berkshire ended 2013 with $48.19 billion in cash and equivalents.
  • Berkshire was a net seller of stock in Q4 2013, selling $191 million more than it bought.
  • Berkshire's gain in net worth during 2013 was $34.2 billon. Over the last 49 years (since Buffett and Munger took over), Berkshire's value has ballooned from $19 to $134,943. That's an astounding rate of 19.7% compounded annually.

  • Berkshire Class A shares gained 18.2% in 2013, underperforming S&P 500 by 14.2%. But analysts were quick to defend Buffett, saying his company tends to outperform the market when gains are harder to come by.
  • Buffett said spending almost $18 billion to purchase all of NV Energy and a major interest in H.J. Heinz has complemented Berkshire's portfolio and both "will be prospering a century from now." He added Berkshire's 50% Heinz stake could grow should Brazil's 3D Capital decide to sell their shares to him.
  • Berkshire boosted its ownership interest in 2013 in each of its "Big Four" investments: American Express Co. (NYSE: AXP), The Coca-Cola Co. (NYSE: KO), International Business Machines Corp. (NYSE: IBM), and Wells Fargo & Co. (NYSE: WFC). "We purchased additional shares of Wells Fargo (increasing our ownership to 9.2% versus 8.7% at yearend 2012) and IBM (6.3% versus 6.0%). Meanwhile, stock repurchases at Coca-Cola American Express raised our percentage ownership."
  • The rate of disasters that Berkshire's insurance companies see hasn't changed because of extreme weather. In an interview Monday on CNBC, Buffett said he hasn't changed the way he calculates the likelihood of a catastrophe because of climate change. He noted that insuring against hurricanes in the United States has been "extremely profitable" over the last five years thanks to few storms actually making landfall.
  • Profit from Berkshire's "Powerhouse Five" unit - the BNSF railway, Iscar for metalworking, Lubrizol for chemicals, Marmon for industrial products, and MidAmerican Energy - might boost pre-tax profit in 2014 by $1 billion from the $10.8 billion they took in during 2013.
  • GEICO was one of Buffett's first major investments. He started buying shares in the 1970s and acquired the company in late 1995. In 1996, GEICO was ranked No. 7 among U.S. auto insurers. Now, it's No. 2, having recently cruised past Allstate.
  • On his hand-picked protégées, Buffett said, "In a year in which most equity managers found it impossible to outperform the S&P 500, both Todd Combs and Ted Weschler handily did so. Each now runs a portfolio exceeding $7 billion. They've earned it."
  • Buffett has shied away from publicly naming a successor, or even suggesting who the frontrunners are, because he says it worries investors who wonder how much longer he will remain running the show. As for who will take the helm when the 83-year-old "greatest investor of all time" steps down, Buffett told CNBC, "A successor will be from within the company." 

Just before noon Monday, with all three major benchmarks down nearly 1%, shares of BRK.A were off 0.23% at $173,312.19.

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