There was little in wide-moat Berkshire Hathaway's fourth-quarter and full-year results that would alter our long-term view of the firm. We are leaving our fair value estimate $215,000 a share in place. The company is currently trading at around $174,000 a share.
Good earnings results for 2013 once again demonstrated the value of Berkshire's diversified portfolio, as solid and consistent results from the firm's non-insurance operations helped smooth out some of the volatility seen in its insurance operations during the year.
Berkshire shares increased 18.2% year over year, higher than our full-year forecast of a 15% gain. With the S&P 500 Index up 32.4% during 2013, this marked just the tenth time in the past 49 years that Berkshire has trailed the benchmark.
It also broke the company's long-standing streak of never having a five-year period of underperformance relative to the benchmark. All told, though, Berkshire has increased its book value per share at a compound annual rate of 19.7% from 1965 to 2013, compared with a 9.8% annualized total return for the S&P 500.
Major acquisitions during the last year included Heinz into which Berkshire invested $8 billion for Heinz preferred stock and another $4.3 billion for a 50% equity stake in Heinz.
Looking more closely at Berkshire's insurance operations, three of the firm's four insurance lines - GEICO, Berkshire Hathaway Reinsurance, and Berkshire Hathaway Primary Group - posted underwriting profits during 2013, despite some of these operations posting higher claims experience at different times during the year. General Re was the only underperformer, impacted by significantly lower underwriting profits on the property/casualty side of the business as the reinsurer was negatively affected by catastrophe losses attributable to a hailstorm and floods in Europe.
Of the more than 70 noninsurance businesses that make up Berkshire's remaining collection of operating subsidiaries, Burlington Northern Santa Fe and MidAmerican Energy Holdings Company are the next two largest contributors to Berkshire's pre-tax earnings and collectively account for around one fourth of our fair value estimate for the firm. The most interesting thing about these two businesses is that neither one was a major contributor to Berkshire's earnings a decade ago, with Buffett's shift into such debt-heavy, capital-intensive businesses as railroads and utilities representing a marked departure from many of his other investments, which have tended to require less ongoing capital investment and have had little to no debt on their books. Buffett entered into these businesses, despite the fact that they would require massive amounts of capital reinvestment, because they could earn decent returns on incremental investments longer term. Much as they have the during past several years, Berkshire's noninsurance operations continue to be a source of stability for the firm, reporting a 10.4% increase year over year in pre-tax earnings during 2013.
The company's finance and financial products division also seems to be on better footing, with total pre-tax earnings rising 16.2% year over year on significantly better performance from Clayton Homes (Berkshire's manufactured housing and finance subsidiary), where pre-tax earnings increased 63.1% year over year to $416 million, thanks to improved sales, lower loan loss, and increased net interest income. With the economy and more importantly the job market continuing to recover in fits and starts, it is encouraging to see some of Berkshire's more economically sensitive operations still posting such solid results.
