Ten Things on Berkshire Hathaway's 10-K

With a bit from Greg Abel's letter to shareholders and CNBC interview thrown in, too

(1) Berkshire Hathaway finished the year with a truly extraordinary cash position of $369-373.1 billion. (Depending on whether cash held in Railroad, Utilities, & Energy is included or not.) I have traditionally used the narrower figure, mostly because that’s how Warren Buffett did it. But new CEO Greg Abel might have a different approach.

In his first letter to shareholders, Abel wrote that “our cash and U.S. Treasury holdings now exceed $370 billion” — signaling perhaps that he prefers the more expansive view of Berkshire’s cash total.

Any way you slice it, this is a lot of money — representing roughly 30.5% of the conglomerate’s total assets. And while such a massive cash hoard is not necessarily ideal — Berkshire would, of course, rather own productive businesses instead of gobs and gobs of T-Bills — it does provide unmatched optionality and dry powder.

I know not everyone will agree, but I see Berkshire’s cash as much more of an opportunity than a cause for concern or handwringing. Especially with Abel pledging to remain disciplined and not allow it to burn a hole in his pocket.

“Obviously,” he told CNBC last week, “we want to deploy the capital into areas that we see long-term value creation for our shareholders. But the goal is not to just take down the amount [no matter what].”

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(2) A not-so-insignificant part of Berkshire’s recent cash accumulation has been the total lack of share repurchases. For several years there, Buffett was able to redirect a lot of excess capital towards buying in Berkshire stock at prices he deemed attractive. When that stopped in May 2024, he lost a favored outlet for the cash flowing into Omaha. But, as Abel announced last week, repurchases have officially restarted — and will continue for as long as the price remains right.

One noteworthy wrinkle: The common stock repurchase program was amended last year to state that Berkshire may buy back shares whenever the CEO — after consultation with the chairman of the board — believes the price is below intrinsic value (conservatively determined). And while it’s not at all surprising that Abel would seek Buffett’s counsel before deploying capital in this manner, that requirement has now been explicitly baked into the process going forward.

(3) Operating earnings — the metric long championed by Buffett, Munger, and now Abel as the truest gauge of Berkshire’s underlying business performance — took a big hit in the fourth quarter. After adjusting for currency fluctuations, Q4 operating earnings declined 28.1%. Which pulled the full-year result down 6% to $44.5 billion.

The main culprit was an increasingly tough environment for insurance underwriters. Basically, big insurance profits in recent years attracted more competition into the markets, which in turn drove premium pricing lower and lower. As a result, Ajit Jain and co. wisely refused to chase volume at inadequate rates for the risks involved.

This happens from time to time in this industry — and, when it does, Berkshire simply scales back and waits for the cycle to turn back in its favor. As it inevitably does. It’s not a sign of structural weakness in Berkshire’s insurance operations, but rather the discipline to walk away instead of writing business at foolish prices.

Abel also highlighted another drag on operating earnings during his CNBC interview. “We did, across our non-insurance businesses, take a $1.55 billion impairment,” he said. “That was across four of our smaller businesses in challenged industries. If it had been any of our major businesses, I would have touched on it [in my letter].”

(4) Although each of Berkshire’s three underwriting groups finished the year with lower earnings, they recorded an impressive overall combined ratio of 87.1%. Abel called this “an exceptional result for an insurer of our scale”. After-tax underwriting earnings clocked in at $7.3 billion; a pretty nice number, albeit one with a very tough year-over-year comparator ($9.0 billion).

The issue, of course, is that earnings may continue to drop for the foreseeable future until the aforementioned industry conditions improve. Underwriting earnings sunk 54% to $1.6 billion in the fourth quarter — with GEICO’s policy acquisition expenses on the rise and BH Primary and BH Reinsurance Groups both writing less premiums.

“In the fourth quarter,” Abel told CNBC, “which then translated for the 12-month results, our insurance results were down. You can see a lot of capital coming into the industry. Ajit and his team will continue to apply the discipline that the price and the risk have to be right for us to write a policy.”

(5) Berkshire was a net seller of stock again in 2025. The conglomerate spent $16.9 billion acquiring equity securities versus $30.7 billion of sales.

Of particular interest, Abel spotlighted four major holdings — Apple, American Express, Coca-Cola, and Moody’s — as quasi-forever holdings. That begs two big questions: What about unmentioned top-five positions like Bank of America and Chevron? And does this mean Berkshire is done selling its Apple shares?

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Berkshire also recorded a $5.7 billion impairment on its Occidental Petroleum stake. But, the 10-K notes, “we currently have no intention of disposing of any Occidental common stock”. Another troublesome investment — Kraft Heinz — may have earned a reprieve by halting its planned separation. Berkshire had been vocally unhappy about the company’s de-merger of sorts and even laid the groundwork to sell off its shares. But, after Kraft Heinz pressed pause on the breakup, Abel shifted into wait-and-see mode. “We thought [the pause] was absolutely the right approach,” he said. And even though Berkshire registered to sell virtually its entire Kraft Heinz position, “[that’s] not something we’re going to take any immediate action on currently”.

(6) BNSF Railway continues to improve, but “not enough” for Abel’s taste. After-tax earnings rose 8.8% to $5.47 billion, driven by enhanced operating efficiencies and a 3.7% reduction in operating expenses. Cash generation also remained robust with $8.1 billion in net operating cash flows — of which $4.4 billion was sent back to Omaha as a dividend. BNSF’s operating margin improved from 32.0% to 34.5%. And, as Abel noted in his letter, for every 1% that this metric increases, $230 million of incremental cash flow will be generated. A little improvement can lead to a lot of cash.

“These gains matter,” wrote Abel, “but they are not enough; more progress is needed to translate operational improvements into stronger financial results … We will be disappointed if we do not deliver a substantial improvement over the next few years.”

Abel’s discontent likely stems from the fact that BNSF’s operating ratio still trails rival Union Pacific (40.2%) by quite a bit. It also lags Norfolk Southern (35.8%), while narrowly leading CSX’s impairment-adjusted mark of 33.2%.

(7) Berkshire Hathaway Energy must determine whether the “regulatory compact” still exists between states and utilities. BHE’s after-tax earnings increased by $249 million for the full year, though did decline 5.2% ($38 million) in the fourth quarter. In his letter, Abel highlighted that the energy company racked up $8.4 billion in net cash flows from operating activities, consistent with its five-year average.

But the PacifiCorp wildfire situation has BHE “rebalancing” its plans going forward. “When a BHE utility is responsible for a wildfire,” wrote Abel, “it has acknowledged that responsibility, including PacifiCorp’s settlements related primarily to the 2020 Labor Day fires. At the same time, PacifiCorp is not an insurer of last resort and should not be treated as a deep pocket. Where responsibility does not exist, it will continue to seek judicial relief.”

He added that BHE’s on-going willingness to invest capital “depends on the continued functioning of the regulatory compact through which utilities earn a reasonable return on invested capital”. And, at the moment, Abel and co. feel that compact has been broken by states and regulators.

(8) The MSR segment is a bit of a mixed bag. Earnings increased 4.4% to $13.6 billion, powered by its manufacturing and service businesses. Precision Castparts continued its comeback with a 34.2% jump in pre-tax earnings and $2.4 billion of net cash flows from operating activities (a big improvement over its pandemic-era numbers).

Other subsidiary news of note: Brooks Sports remains the current standout of the consumer products group; the high-volume/low-margin McLane grew its profit margin by 1.3% as pre-tax earnings jumped by $42 million; and NFM was the only member of the retail group to boost its earnings.

(9) Abel provided much-appreciated commentary on last year’s acquisitions.

OxyChem is a well-run industrial chemicals business we first encountered through our investment in Occidental. The chlorine and caustic soda it produces serve essential markets, led by construction and core industrial uses. Management prioritizes efficient execution over volume, supported by an integrated asset base and access to low-cost raw materials. For Berkshire, this translates into cash flows from a compelling addition to our operating businesses.

Last year, Warren received a letter from Steve Levy, Bell Laboratories’ CEO, asking that we look at the family-owned business he manages for the daughters of founder Malcolm Stack. Steve’s letter was perfect. Bell Laboratories meets a persistent need: rodent control. In Steve’s words, it possesses “high operating margins, very good historical growth and future growth potential, easy to understand and always needed, and a strong management team.” In our words: a business with durable advantages and long-term economic prospects run by excellent managers. We only wish it had been ten times bigger.

(10) Pilot continues to scuffle, but Abel sounds relatively hopeful that better days are on the way. Earnings at the travel center network plummeted 69.1% to just $190 million, but the Berkshire CEO shared that it nevertheless delivered $1.7 billion of net cash flow from operating activities (which was actually an improvement over 2024).

He also mentioned that Pilot’s Pro Preference score — which measures how often professional drivers choose Pilot over the competition — increased from 27% in 2022 to 35% today. And while that ranks second in the industry, it’s still not good enough. “We should be #1,” wrote Abel, “and we will not be pleased until that is achieved.”