My analysis of Berkshire Hathaway's fourth-quarter and full-year 2025 earnings

On Saturday, Berkshire Hathaway (BRK-B) released its fourth-quarter and full-year 2025 earnings report. And Greg Abel shared his first annual letter as the company's new CEO.

(You can read the entire report and letter here and the press release here.)

So let's take a look at the numbers...

GAAP net income declined for both the quarter and the year. This was largely due to mark-to-market losses in the investment portfolio, which are largely meaningless over short periods of time.

In the fourth quarter, operating earnings fell 30% year over year ("YOY"), dragging the full-year decline to negative 6%. This disappointing number led to a sharp 4.9% drop in the stock yesterday.

Here's the breakdown from the press release (the dollar figures are in millions, except for per-share amounts):

Let's drill down into the operating earnings to better understand the decline – here's the second table from the press release:

Let's go through this line by line...

Insurance-underwriting profits declined by 54% in the fourth quarter and 20% for the year. This was due to "the ongoing impacts of competition within the industry and rising claim cost trends" (from Page K-34 of the Form 10-K, which is part of the annual report).

Profits at all three of Berkshire's insurance segments were down YOY, albeit from an exceptionally strong 2024, as this table from Page K-35 of the 10-K shows:

Pages K-36 through K-40 have an in-depth breakdown of these results.

My friend and former hedge-fund partner Glenn Tongue commented on Geico:

The $1 billion decline at Geico is due to expenses growing by $1.4 billion. Most of this increase was driven by higher policy acquisition costs (advertising). In other words, they are spending money to accelerate the business growth. That is a good development, as the benefit will be seen in subsequent quarters.

He added:

Much of the $630 million decline in insurance-underwriting profits came from the reinsurance businesses and simply reflects Berkshire's underwriting discipline. The business tends to be very cyclical because new capital enters the reinsurance space after profitable years. Berkshire's historic success, in contract, comes from not chasing volume at the expense of profits. Berkshire continues as the premier reinsurance franchise in the world.

Investment income declined due to a fall in short-term interest rates. That's despite Berkshire's insurance "float" rising from $171 billion to $176 billion for the year and cash soaring from $334 billion to $373 billion.

One of Berkshire's largest segments is Burlington Northern Santa Fe ("BNSF"), which operates one of North America's largest railroad systems. For this segment, earnings rose 5.4% in the fourth quarter and 8.8% for the year (Pages K-41 through K-43 go into more detail).

BNSF revenue was flat, but expenses declined 3.7% in 2025 thanks to "increased employee productivity, partially offset by wage inflation" and "lower average fuel prices and improved fuel efficiency."

Perhaps we're seeing benefits from what I've long called for: BNSF adopting more of the "precision railroading" techniques pioneered by industry legend E. Hunter Harrison.

Earnings at Berkshire Hathaway Energy were down slightly in the fourth quarter and up slightly for the year. Utilities earnings were up, but natural gas pipelines and other energy businesses were down, as you can see in this table (Pages K-43 through K-46 have the details):

Profits at Berkshire's collection of manufacturing, service, and retailing businesses rose 3.3% for the quarter and 4.4% for the year. This was thanks to strong results from Precision Castparts, Marmon, NetJets, FlightSafety, and McLane.

Lastly, the decline in "other" earnings can be ignored. It relates to foreign-currency exchange-rate losses related to non-U.S.-dollar denominated debt of approximately $642 million in 2025 versus gains of approximately $1.1 billion in 2024.

Overall, Berkshire's operating businesses had an unremarkable quarter, especially compared with an exceptionally strong 2024. But keep in mind that they continue to gush cash.

Let's now take a closer look at Berkshire's $373 billion cash hoard, which is larger than most companies' market caps...

It rose by $39 billion last year for three reasons:

• Berkshire generated an astounding $46 billion in operating cash flow, offset by "only" $20.9 billion in capital expenditures. That resulted in $25.1 billion of free cash flow.
• In 2025, former CEO Warren Buffett – and his colleagues Ted Weschler and the now-departed Todd Combs – purchased only $16.9 billion worth of stocks and sold $30.7 billion worth. This added $13.8 billion to the company's cash on hand.
• There were no meaningful acquisitions during the year (a mere $1.1 billion).

It's worth pondering why Buffett, the most talented capital allocator ever, let cash pile up like this...

I think it's mostly by default. Seventeen years into a bull market, the valuations of stocks and private businesses Buffett might've bought are high by historical standards – and his own standards. Plus, Berkshire is now earning a satisfactory rate on its cash, so it makes sense that Buffett sat tight in 2025.

I've also heard from a credible source that Buffett was worried about a sharp market pullback.

That said, I have no doubt that, moving forward, Abel would put 90% of Berkshire's cash to work in an instant if the opportunity presented itself.

In my January 8 e-mail, I shared a column by one of my favorite business writers, William Cohan. In his Puck article, Make Berkshire Hathaway Great Again?, he speculated about three companies that Abel might buy "with the staggering [now $373] billion bequeathed to him by the most legendary investor of his generation."

Lastly, let's look at share repurchases...

Buffett started buying back shares in 2018 and really ramped it up in 2020 and 2021.

He then slowed buybacks to a trickle in early 2022 as Berkshire's share price hit an all-time high (and briefly reached my estimate of the company's intrinsic value).

But as the stock (and markets) declined, Buffett resumed sizable buying in late 2022 and the first quarter of 2023 before pulling back again. And there have been no share repurchases at all in the past year and a half:

I don't think this means Berkshire's stock is overvalued – but it's not significantly undervalued, either.

As you can see in the chart below, Berkshire has modestly outperformed the S&P 500 Index over the past five years – around 90% versus 80%, respectively:

That's despite Berkshire having underperformed over the past year – negative 6% versus 18% for the S&P 500:

I'll take my analysis a step further when I share my updated estimate of Berkshire's intrinsic value in an upcoming e-mail. So stay tuned!

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.