2025 Annual Report - Greg Abel's first annual letter

[backtothebeach]

Have not read the whole letter yet, but it feels a bit like a kitchen sink report?

 

"Other-than-temporary impairment of investments in Kraft Heinz and Occidental (8,255)"

 

$373.3B cash. No buybacks.

 

2025 operating earnings are down from 2024.

 

Operating Earnings
 

2023  Q1          8,065

           Q2       10,043

           Q3        10,761

           Q4         8,481

 

2024  Q1         11,222

           Q2        11,598

           Q3       10,090

           Q4        14,527

 

2025  Q1          9,641

           Q2         11,160

           Q3        13,485

           Q4        10,200
 

Edited February 28 by backtothebeach

[gfp]

After a slow start the first few pages, I really enjoyed the new style of the letter.  An annual report should be about Berkshire.  Recent reports have strayed too far from that fundamental purpose.

[John Hjorth]

Thank you for taking the initiative to this topic, @backtothebeach,

 

Does quaterly earnings even matter for us, if they are subject to 'management estimates', 'other than temporary impairments' etc. Big bath accounting by Mr. Abel seem [relatively] limited [USD 8.3 billion is to me personally 'limited', in Berkshire perspective.

 

Like @gfp,

 

On overall basis, I like the letter a lot [, without having trawled through anything by now].

[sleepydragon]

I like greg reiterating two most important pillar of culture, in my opinion -- decentralized managements and centralized capital allocation. 

[John Hjorth]

22 minutes ago, sleepydragon said:

I like greg reiterating two most important pillar of culture, in my opinion -- decentralized managements and centralized capital allocation. 

 

@sleepydragon,

 

I agree, wholeheartedly. Let's see how it goes. I feel confident by now. [<- which may change].

[MarioP]

My take on this letter is that it aim to reassure the old guard that there is no radical change in the management philosophy and that it is business as usual. 

 

one thing that i anticipated that is lacking is more in dept discussion about the change in the energy market and how big is the opportunity for futur capital usage there. He only talk about the criteria that has to be met for it to happening.

Edited February 28 by MarioP

[AzCactus]

 

34 minutes ago, MarioP said:

My take on this letter is that it aim to reassure the old guard that there is no radical change in the management philosophy and that it is business as usual. 

 

One change for sure is CEO compensation-lol from 100K year to like 25 MM.  not saying greg is or isn't worth it but things are gonna be different regardless of what he writes.  

[MarioP]

I hope he will use at least 20M to buy BRK shares

[Munger_Disciple]

It was a decent letter. I am however a bit disappointed with the lack of more in-depth discussion on BHE's wild fire risks and possible resolution of lawsuits. 

[kodiak]

Greg's letter sounded a lot like Prem. Decentralized is highlighted. Float is highlighted. Being around for 100 years is highlighted. One key difference. Berkshire stock price doesn't merit buybacks right now and Prem is trying to buy back every shares of Fairfax at current prices. I am long Fairfax and not Berkshire right now. 

[Loss Horizon]

I really hate Mr. Abel's style. Too much corporate speak, repetitions and complex meaningless sentences. Buffett was honest and straightforward and his letters did not read like average corporate nonsense.

 

Quote

Our success also benefits from our Board’s leadership and ongoing alignment with our focus.

 

"Success" doesn't "benefit" from anything. A company may benefit, a company might have success, and the new CEO doesn't have any results yet to qualify as "success". Word "focus" is not a right combination with "alignment". "Alignment" is "ongoing" somewhere? What alignment, what is it ongoing? No context, filler words.

[Munger_Disciple]

18 minutes ago, Loss Horizon said:

I really hate Mr. Abel's style. Too much corporate speak, repetitions and complex meaningless sentences. Buffett was honest and straightforward and his letters did not read like average corporate nonsense.

 

 

"Success" doesn't "benefit" from anything. A company may benefit, a company might have success, and the new CEO doesn't have any results yet to qualify as "success". Word "focus" is not a right combination with "alignment". "Alignment" is "ongoing" somewhere? What alignment, what is it ongoing? No context, filler words.

 

I agree that sentence makes no sense whatsoever. He should have just said the Board always makes decisions with the best long-term interests of shareholders in mind; i.e., they act like owners. 

Hopefully it's just a rookie error. 

 

[pine]

3 minutes ago, Munger_Disciple said:

 

I agree that sentence makes no sense whatsoever. He should have just said the Board always makes decisions with the best long-term interests of shareholders in mind; i.e., they act like owners. 

Hopefully it's just a rookie error. 

 

Well if forced to choose I guess walking the walk is more important than talking the talk.  

[Loss Horizon]

Another writing mistake:
 

Quote

Our approach to cash dividends continues to be that Berkshire will not pay dividends so long as
more than one dollar of market value for shareholders is reasonably likely to be created by each
dollar of retained earnings

"More than one dollar" is not enough, 1.01 is more than one yet less than what cash pays and less what S&P500 has paid historically. Both Buffett and Munger aimed at beating S&P500.

 

A bit of nitpicking from my side, but this is a world class CEO who is going to be compared with his predecessor, including writing.

 

Upd: my mistake, "more than one dollar of market value" = more than other investment opportunities on the market currently

Edited March 1 by Loss Horizon

[Munger_Disciple]

14 minutes ago, Loss Horizon said:

Another writing mistake:
 

"More than one dollar" is not enough, 1.01 is more than one yet less than what cash pays and less what S&P500 has paid historically. Both Buffett and Munger aimed at beating S&P500.

 

A bit of nitpicking from my side, but this is a world class CEO who is going to be compared with his predecessor.

 

I think you are being too nit-picky on this one. It's almost exactly the same thing as the famous Buffett Retained Earnings Test. 

Edited March 1 by Munger_Disciple

[Munger_Disciple]

4 minutes ago, pine said:

Well if forced to choose I guess walking the walk is more important than talking the talk.  

 

Yes in the end the proof will be in the pudding. I wish Greg all the best as he undertakes this challenge. 

[Eldad]

I agree that it got better as it went along. The beginning was a pretty bad word salad, but overall it was good. 
 

Cheesy, basic CEOs always go on and on about worker safety being the first priority and wanting to constantly reinforce the cultural propaganda integrity, teamwork, customer first, blah blah blah. He did a lot of that but the culture talk also had a lot of substance to it. My only real problem with him is he needs to own way more stock. 

[Licorice]

Since Warren is gone, hopefully the annual meeting will have more discussion about the business rather than the general life lesson questions. 

 

I'm also looking forward to hear what Katie and Adam have to say.

[KPO]

34 minutes ago, Loss Horizon said:

Another writing mistake:
 

"More than one dollar" is not enough, 1.01 is more than one yet less than what cash pays and less what S&P500 has paid historically. Both Buffett and Munger aimed at beating S&P500.

 

A bit of nitpicking from my side, but this is a world class CEO who is going to be compared with his predecessor, including writing.

Listen to what he does, not what he says. The filing to sell KHC and the subsequent KHC announcement to pause the split may be an early example of managing Berkshire with sharper elbows. I think the company needs that now. I look forward to observing what Greg does in the coming year+. 

[Loss Horizon]

46 minutes ago, Munger_Disciple said:

 

I think you are being too nit-picky on this one. It's almost exactly the same thing as the famous Buffett Retained Earnings Test. 

 

Thank you, that clarifies it.

[Parsad]

11 hours ago, sleepydragon said:

I like greg reiterating two most important pillar of culture, in my opinion -- decentralized managements and centralized capital allocation. 

 

3 hours ago, Loss Horizon said:

I really hate Mr. Abel's style. Too much corporate speak, repetitions and complex meaningless sentences. Buffett was honest and straightforward and his letters did not read like average corporate nonsense.

 

 

"Success" doesn't "benefit" from anything. A company may benefit, a company might have success, and the new CEO doesn't have any results yet to qualify as "success". Word "focus" is not a right combination with "alignment". "Alignment" is "ongoing" somewhere? What alignment, what is it ongoing? No context, filler words.

 

I think you guys have to remember that this is no longer Buffett's Berkshire, but will slowly become more akin to other great founder companies that are simply just corporations.  The standards and culture may remain a lot longer, but the "teacher/master" is no longer giving lessons to his partners. 

 

That was a blip in time/history that will never come back!  We are all extremely fortunate to have witnessed it and been able to participate in it, learn from it, be better people hopefully from it! 

 

The letter was fine.  It was trying to confirm, convey and reassure...pretty much what all annual corporate letters should do.  The masterful lessons in insurance accounting, accounting engineering, finance, leadership, friendship, loyalty, respect, integrity and honesty are not part of the curriculum anymore. 

 

What you've learned, you have...try and pass it on to your children, family, friends, associates and community.  We are all the progeny of Berkshire culture!  That's it...the rest is now gone!

 

Cheers! 

[Gamecock-YT]

If I was an employee that got that BS corporate letter he spends so much time talking about, I would have thrown it in the trash by the second paragraph. Do you think the person manufacturing homes for Clayton gives 2 licks about 'the shareholders', 'thinking in decades', or 'maintaining a fortress-like balance sheet' or do they care about getting a pay raise and more benefits? I guess Greg missed the principal-agent problem when they taught it at business school.  

 

 

Toto, I've a feeling we're not in Kansas anymore

[Parsad]

22 minutes ago, Gamecock-YT said:

If I was an employee that got that BS corporate letter he spends so much time talking about, I would have thrown it in the trash by the second paragraph. Do you think the person manufacturing homes for Clayton gives 2 licks about 'the shareholders', 'thinking in decades', or 'maintaining a fortress-like balance sheet' or do they care about getting a pay raise and more benefits? I guess Greg missed the principal-agent problem when they taught it at business school.  

 

 

Toto, I've a feeling we're not in Kansas anymore

 

Hmmm, he's running Berkshire, not each subsidiary.  I would leave the subsidiary annual letter to the CEO of that company...ie Clayton Homes' CEO talks to his employees about operations, benefits, compensation, etc.  Abel's job is to speak to Berkshire shareholders.  Cheers!

[Maverick47]

Overall the letter worked to assuage fears that things would change dramatically under Greg.  He did a fine job of emphasizing the continuing importance of culture and the emphasis on integrity and reputation.

 

As a lover of history (business or otherwise) I’m going to miss the additional 35 years or so of lifespan, experience and wisdom that Warren has over Greg.  
 

As someone who enjoys math and appreciates precision and accuracy in language as well as numbers, I did find one sentence in the BNSF sanction that rang a little false to me:

“We view operating margin (the inverse of the industry’s operating ratio) as the best measure of performance.”

 

Personally, when I think about the inverse of a ratio, I take that to mean finding the reciprocal, or 1/(ratio in question).

 

But that’s clearly not the case here.

 

I think that a clearer statement could have been something such as:

 

”We view operating margin (the complement of the industry’s operating ratio, since together they equal 100% of revenue) as the best measure of performance.”

 

Just a minor nitpick….

Edited March 1 by Maverick47

[dealraker]

3 hours ago, Maverick47 said:

Overall the letter worked to assuage fears that things would change dramatically under Greg.  He did a fine job of emphasizing the continuing importance of culture and the emphasis on integrity and reputation.

 

As a lover of history (business or otherwise) I’m going to miss the additional 35 years or so of lifespan, experience and wisdom that Warren has over Greg.  
 

As someone who enjoys math and appreciates precision and accuracy in language as well as numbers, I did find one sentence in the BNSF sanction that rang a little false to me:

“We view operating margin (the inverse of the industry’s operating ratio) as the best measure of performance.”

 

Personally, when I think about the inverse of a ratio, I take that to mean finding the reciprocal, or 1/(ratio in question).

 

But that’s clearly not the case here.

 

I think that a clearer statement could have been something such as:

 

”We view operating margin (the complement of the industry’s operating ratio, since together they equal 100% of revenue) as the best measure of performance.”

 

Just a minor nitpick….

The obsession with OR in the railroad business is quite the...well...obsession.  Freight volumes over the last ten years aren't much popular to discuss.

 

As is the norm, the expectation or sales pitch is for volumes to increase.  Meanwhile we have a merger and yet another few years of garbled financial presentations to come from paying up dearly and models of the past that struggled.

 

Owner of NSC since 1976; UNP and CSX for about 40 years; Burlington and Kansas City before bought; and CP and CNI for getting close to 20 years.

 

The hump yard I can see part of and hear from my lake home was "cut" only to re-open when service sucked.  Cutting your way to stardom is something the railroad industry should drop in the dust.