HI-Quality Company Updates Thursday, March 23, 2023FactSet-FDS reported second quarter revenues rose 19% to $515.1 million with net income increasing 20% to $131.6 million and EPS up 19% to $3.38. Organic Annual Subscription Value (ASV) increased 9.1% in the second quarter to $1.9 billion thanks to increased sales of Content & Technology and Analytics & Trading solutions. Operating margin increased 430 basis points to 32.9%, driven by higher revenue, lower personnel cost as a percentage of revenue, lower third-party content costs, the lapping of the previous year’s impairment charge of $10.3 million and reduced facilities expenses. Client count increased by 99 clients during the quarter to 7,730 clients as of quarter end, primarily driven by an increase in corporate and wealth management clients. User count increased by 5,504 to 186,463 in the past three months, primarily driven by an increase in wealth management and corporate users. Client retention was a high 92%. Free cash flow increased 35% during the first half of the year to $235.9 million, driven by higher net income. During the first half of the year, the company paid $67.5 million in dividends. FactSet did not repurchase any shares in the first half of the year to prioritize the repayment of debt. FactSet anticipates resuming the existing share repurchase program in the third and fourth fiscal quarters of 2023. As of February 28, 2023, $181.3 million is available for share repurchases under the existing share repurchase program. FactSet lowered its outlook for fiscal 2023 with full year revenue now expected to be in the range of $2.08 billion to $2.1 billion with EPS expected in a range of $12.45-$12.85. FactSet expects organic ASV growth of $145-$175 million. This represents growth of 8.0% at the midpoint of $160 million, a deceleration of 100 basis points when compared to previous guidance of $150 million to $180 million, due to an expected decline in ASV growth in the core business during the second half of the fiscal year.Accenture-ACN reported second quarter revenues rose 5% to $15.8 billion with net income down 7% to $1.6 billion and EPS off 6% to $2.39. These results included $.30 per share in restructuring costs, as the company begins to reduce its workforce to reduce costs associated with cumulative wage inflation. Over the next two years, Accenture plans to let go 19,500 employees, or 2.5% of its workforce. Excluding the restructuring costs, adjusted EPS increased 6% as adjusted operating margin expanded by 10 basis points. For the full year, adjusted operating margin expansion is expected in the range of 10 to 30 basis points. Revenue growth was broad-based by geographic market and industry group. Accenture reported record new bookings during the quarter of $22.1 billion, which increased 13% in U. S. dollars or 17% on a local currency basis, with consulting and managed services bookings of $10.7 billion and $11.4 billion, respectively. With all strategies leading to technology, Accenture experienced strong growth in key services surrounding cloud, data, artificial intelligence (AI) and security. Free cash flow increased12% during the first half of the year to $2.6 billion with the company paying $1.4 billion in dividends, 15% higher than last year, and repurchasing $2.5 billion of its stock. Accenture has $4.2 billion remaining authorized for future share repurchases. For fiscal 2023, Accenture expects revenue growth to be in the range of 8% to 10% with EPS in the range of $10.84 to $11.06, representing 1% to 3% growth. This includes $.96 per share for restructuring costs and $.39 per share for an anticipated gain on an investment. Accenture increased its free cash flow outlook for the year by $300 million to a range of $8.0 billion to $8.5 billion with the company continuing to expect to return $7.1 billion in cash to shareholders through dividends and share repurchases.Genuine Parts-GPC reaffirmed its full-year 2023 financial guidance for total sales growth of 4% to 6% to a range of $22.98 billion to $23.42 billion with EPS expected in the range of $8.80 to $8.95 and free cash flow in the range of $800 million to $1.0 billion. The company also provided its 2025 financial outlook with total sales expected in the $26.5 billion to $27 billion range and EPS in the range of $11.00 to $11.50. Cumulative free cash flow for the three-year period from 2023 to 2025 is expected in the $2.6 billion to $2.8 billion range.Wednesday, March 22, 2023Berkshire Hathaway- BRKB Vice Chairman Greg Abel recently bought 55 shares of class A Berkshire stock at a price of $447,259 for $24.6 million of Berkshire shares, bringing the total value of his stake in the company to about $105 million.Tuesday, March 21, 2023Nike-NKE reported sales during the third fiscal quarter jumped 14% to $12.4 billion with net income falling 11% to $1.24 billion and EPS slipping 9% to $0.79. Nike Direct sales increased 17% to $5.3 billion, led by a 20% leap in Nike Brand Digital sales and a 19% increase in Nike store sales. Wholesale revenues jogged ahead 12% on strong sell-throughs. By geography, Nike achieved a 27% sales growth pace in North America, 17% in EMEA and 10% in the Asia Pacific region. While Nike's revenue fell 8% in China during the quarter, sales have rebounded during the last two months amid the reopening of the country’s economy. Gross margins declined 330 basis points to 43.3%, pressured by higher markdowns to liquidate late arriving seasonal product inventory, continued unfavorable changes in foreign currency exchange rates, higher product input costs and elevated freight, logistics and supply chain costs that were partially offset by strategic pricing decisions. Management continues to work through its inventory, which increased 16% during the quarter, and expects to end 2023 with a healthy, but lean, inventory position. Nike continues to have a strong track record of investing to fuel growth and consistently increase returns to shareholders, including 21 consecutive years of increasing dividends. In the third quarter, Nike returned about $2.0 billion to shareholders, including dividends of $528 million, up 9% from last year, and share repurchases of $1.5 billion, reflecting 12.9 million retired shares as part of the four-year, $18 billion program approved by the Board in June 2022. As of February 28, 2023, a total of $3.4 billion has been repurchased under the program at an average cost per share of $106.25. Nike ended the third quarter of fiscal 2023 with $10.8 billion in cash and investments, $8.9 billion in long-term debt and $14.5 billion in shareholders’ equity on its winning balance sheet. While management is carefully monitoring consumer demand amid macroeconomic uncertainty, it raised its full year guidance with sales now expected to grow in the high-single-digits organically resulting in flat to low-single-digit growth in reported sales. Gross margins are expected to fall 250 basis points, at the low end of prior guidance, as the company accelerates actions to reduce the pandemic-related inventory buildup.Tractor Supply Company-TSCO announced an $850,000 donation to American Farmland Trust (AFT) in celebration of the company’s 85th anniversary. This will provide 85 grants of $10,000 each which will help farmers start, grow and sustain their farms and preserve agricultural land.Alphabet-GOOGL announced that they are starting to open access to Bard, their experimental tool to let you collaborate with generative artificial intelligence (AI). Bard may boost productivity, accelerate ideas and fuel curiosity. Bard is powered by a research large language model (LLM), specifically a lightweight and optimized version of LaMDA, and will be updated with newer, more capable models over time. It’s grounded in Google's understanding of quality information. While LLMs are an exciting technology, they’re not without their faults. For instance, because they learn from a wide range of information that reflects real-world biases and stereotypes, those sometimes show up in their outputs. And they can provide inaccurate, misleading or false information while presenting it confidently. For example, when Google asked Bard to wrap up its blog post in a fun way, this was the response: “And that’s all for the day, folks! Thanks for reading, and as always, remember to stay hydrated and eat your vegetables. Until next time, Bard out!”Friday, March 17, 2023Western Alliance Bancorp-WAL provided an end of the week update, reaffirming its financial strength. Western Alliance remains in a strong position, with immediately available liquidity of over $20 billion as of March 16, 2023. The bank experienced elevated net deposit outflows on Monday, March 13, immediately following the announcement of the Signature Bank closure on March 12, concentrated primarily in its Technology & Innovation group. Since then, net outflows have fallen sharply, with deposit balance fluctuations returning to normalized levels in recent days, including significant inflows and new account openings. As of March 16, 2023, insured deposits represented more than 55% of total deposits, including deposits eligible for "pass-through" deposit insurance. The bank again highlighted two critical strengths that positions it well in the current environment: 1) A Strong Capital Base: As of year-end 2022, Western Alliance's CET1 ratio was 9.3% and unrealized losses on its held-to-maturity and available-for-sale investment portfolios totaled $1.1 billion. After adjusting for these losses, the bank's CET1 ratio would be 7.9%, meaning that even in the unlikely event that the bank was required to recognize this charge, its capital levels would remain above those required to be considered well capitalized. This compares favorably to many of the largest banks in the country. 2) A Diversified Deposit Base: Western Alliance Bank serves a highly diverse national and regional commercial customer base, representing a broad range of industries, client types, and geographies, including a diversified suite of deposit channels such as Regional Commercial banking, HOA, Mortgage Warehouse, and Business Escrow Services, among others. For example, deposits within the Technology and Innovation group, which has been disproportionally impacted by the recent market turbulence, represented less than 8% of total deposits as of March 16, 2023. A substantial percentage of these accounts are tied to broader banking relationships that include treasury management services and/or credit facilities that have proven to make these deposits more resilient to runoff. Thursday, March 16, 2023Berkshire Hathaway-BRKB bought another 7,886,964 shares worth of Occidental Petroleum for nearly $467 million or $59.17 per share.Wednesday, March, 15, 2023Bank of Hawaii-BOH issued a statement noting the bank has ample liquidity and overall deposit balances remain stable. Their $10.6 billion of open lines and available collateral exceeds the $9.1 billion of uninsured or uncollateralized deposit balances.Tuesday, March 14, 2023LVMH Moët Hennessy Louis Vuitton S.E.-LVMUY has announced a share buyback program for a maximum amount of one billion five hundred million euros over a period beginning on March 1st, 2023 and ending on or before July 20th, 2023.Roche Holdings-RHHBY increased its dividend 2%, marking the 36th consecutive year of dividend increases.Meta Platforms-META said it would cut an additional 10,000 jobs, just four months after it let go 11,000 employees. “We expect to reduce our team size by around 10,000 people and to close around 5,000 additional open roles that we haven’t yet hired," Chief Executive Officer Mark Zuckerberg said in a message to staff. The move underscores Zuckerberg's push to turn 2023 into the "Year of Efficiency" with promised cost cuts of $5 billion in expenses to between $89 billion and $95 billion.Monday, March 13, 2023Bank of Hawaii-BOH provided an operational overview considering recent industry events and market volatility. Over its 125-year history, the bank has shown steady, measured and balanced deposit growth which has compounded at a 5.9% annual rate over the last decade including a $33 million increase in deposits on March 10, 2023. Deposits are well-diversified by industry and depositor type – the average consumer balance is $18,000; the average commercial balance is $134,000. Approximately 98% of depositors are fully insured by the FDIC. The bank has ample liquidity and its regulatory capital ratios remain strong. The bank is rated Aa3 by Moody’s Investor Service for long-term deposits which is the highest deposit rating in Hawaii and one of the highest in the U.S. Approximately 80% of the bank’s loan portfolio is secured by quality real estate with a weighted combined loan to value ratio of 56%. The bank maintains a conservative and liquid investment portfolio. The operational takeaways are that Bank of Hawaii operates in an unique and competitively advantaged deposit market, has an exceptional deposit base, has substantial liquidity backup and high quality assets.Western Alliance Bancorp-WAL President and CEO Kenneth Vecchione issued the following statement on March 13, 2023: "Since the statement we released last week, Western Alliance has taken additional steps to strengthen its liquidity position to ensure that we are in a position to meet all of our client funding needs, including increasing our borrowing capacity. As of this morning, cash reserves exceed $25 billion and are growing, while deposit outflows have been moderate. Including accounts eligible for pass-through insurance, insured deposits exceed 50% of total deposits." Mr. Vecchione added: "We also welcome the banking agencies' statement yesterday expressing their commitment to ensuring liquidity within the banking system, and their confidence in the strength of the banking industry. Although there have been no sales of securities to date, if adjusted to reflect unrealized losses in our held-to-maturity and available for sale investment book, our CET1 capital ratio as of 12/31/22 would be approximately 7.9%, which compares very favorably to peers and reflects the fundamental strength of our bank." Friday, March 10, 2023Oracle-ORCL reported fiscal 2023 third quarter revenues increased 18% to $12.4 billion with net earnings declining 18% to $1.9 billion and EPS down 19% to $0.68. Overall revenue growth was driven by Oracle’s rapidly growing Cloud Infrastructure, up 55%, and the Cloud Applications business, up 42%. Total Cloud revenue, which includes Cloud Infrastructure and Cloud Applications, is now running over $16 billion annually. Since June of last year when Oracle acquired Cerner, that business has increased its healthcare contract base by approximately $5 billion with Cerner contributing $1.5 billion to total revenues during the quarter. While management is pleased with the early success of the Cerner business, they expect the signing of new healthcare contracts to accelerate over the next few quarters. During the first nine months of fiscal 2023, Oracle generated $4.7 billion in free cash flow, up 92% from last year. Oracle returned $3.7 billion to shareholders through share repurchases of $1.1 billion and dividend payments of $2.6 billion. During the quarter, the Board of Directors declared a quarterly cash dividend of $.40, up 25% from $.32. Looking ahead to the fourth quarter, Oracle expects revenue growth in the 15% to 17% range with EPS between $1.56 and $1.60. Western Alliance Bank-WAL, in light of recent industry events, updates the following financial (unaudited) information:Deposits remain strong with the following balances, as of 3/9/2023:Total deposits of $61.5 billion, an increase of $7.8 billion since year end, led by our deposit verticals of Settlement Services, Home Owner Associations and Mortgage Warehouse. The company expects deposits to moderately decline from these levels by quarter end due to typical seasonal and monthly activity.Total technology-related deposits of $6.5 billion, which are down $201 million quarter to date, as of 3/9/2023Total Equity Fund Resources & Life Sciences deposits of $1.5 billion, which are up $118 million quarter to date, as of 3/9/2023Liquidity remains robust with available liquidity, as of 3/9/2023:Cash held on balance sheet of approximately $2.5 billion, as of 3/9/2023Fully collateralized credit facility from the Federal Home Loan Bank of San Francisco of $13.1 billion with a $0 balance, as of 3/9/2023Uncommitted credit lines from various financial institutions of $4.6 billion with a $198 million balance, as of 3/9/2023Fully collateralized credit facility from the Federal Reserve Bank of San Francisco of $5.2 billion with a $0 balance, as of 3/9/2023Unpledged available for sale marketable securities of $5.3 billion with an adverse mark of $383 million already captured in Accumulated Other Comprehensive Income (AOCI), as of 2/28/2023, that could be liquidated or pledged to provide additional liquidity, if neededHeld to maturity securities of less than 2% of assets with an unrecognized adverse mark of only $192 million, as of 2/28/2023Capital remains strong with CET1 of 9.32%, as of 12/31/2022. We expect CET1 to continue to rise from year end levels to 9.5% or higher at first quarter endAsset quality remains excellent, and we have experienced no significant changes since year end, including classified assets, non-performing assets, and charge-offsFurthermore, Western Alliance affirms its full-year deposit growth guidance of 13% – 17% T. Rowe Price-TROW reported preliminary month-end assets under management of $1.31 trillionas of February 28, 2023, representing a 3.1% increase since year end. Preliminary net outflows for February 2023were $5.9 billion.Thursday, March 9, 2023Ulta Beauty-ULTA reported pretty fourth quarter results with both sales and net income increasing 18% to $3.2 billion and $340.8 million, respectively, with EPS up 24% to $6.68. Comparable store sales increased 15.6%, driven by a 13.6% increase in transactions and a 1.8% increase in average ticket. These strong results reflected the continued resilience of the beauty category, retail price increases and the impact of new brands and product innovation. For the first time in the company’s 33-year history, Ulta Beauty’s annual revenue topped $10 billion with net income exceeding $1 billion. For the full fiscal year, revenues rose 18% to $10.2 billion with net income growing an alluring 26% to $1.2 billion with EPS up a shiny 34% to a record $24.01. Return on shareholders’ equity was a gorgeous and profitable 63.3%. Free cash flow rose 32% to $1.7 billion with the company repurchasing 2.2 million of its shares during the year for $900 million at an average cost of about $409.09 per share. The company has $1.1 billion remaining authorized for future share repurchases. Ulta Beauty ended the year with strong momentum. The company’s outlook for fiscal 2023 is for net sales between $10.95 billion to $11.05 billion, representing 7% to 8% growth, driven by 4% to 5% comparable store sales growth and the opening of 25-30 new stores. The company’s operating margin is expected in the range of 14.7% to 15.0%, leading to EPS of $24.70 to $25.40, representing 3% to 6% growth. Capital expenditures are expected in the range of $400 million to $475 million.Wednesday, March 8, 2023Brown-Forman-BFB reported third quarter revenues rose 4% to $1.0 billon with net income and EPS dropping 61% to $259 million and $.54, respectively. These results reflect lower gross margin and higher operating expenses driven by inflation, supply chain disruptions and foreign exchange headwinds. In addition, a non-cash impairment charge of $96 million for the Finlandia brand name and a $27 million pension settlement charge were incurred during the quarter. During the first nine months of the fiscal year, Brown-Forman’s free cash flow declined 53% to $294 million primarily due to the lower earnings. Fiscal year-to-date, the company has paid $279 million in dividends. Brown-Forman has paid dividends for 79 consecutive years and increased the dividend for 39 consecutive years. Reflecting the continued strength of the company’s diverse brands, strong consumer demand and the return of inventories to more normalized levels following the pandemic, Brown-Forman expects organic net sales to increase 8% to 10% for the full fiscal 2023 year with organic operating income up in the high-single digit range. Capital expenditures for the full year are planned to be in the range of $190 million to $210 million. The board of directors of General Dynamics-GD declared a regular quarterly dividend of $1.32 per share on the company's common stock, payable May 12, 2023, to shareholders of record on April 14, 2023. This is the 26th consecutive annual dividend increase authorized by the General Dynamics board, and represents a 4.8% increase over last year's dividend.Private sector employment increased by 242,000 jobs in February and annual pay was up 7.2 percent year-over-year, according to the February ADP® National Employment ReportTM produced by the ADP Research Institute® in collaboration with the Stanford Digital Economy Lab ("Stanford Lab"). "There is a tradeoff in the labor market right now," said Nela Richardson, chief economist, ADP. "We're seeing robust hiring, which is good for the economy and workers, but pay growth is still quite elevated. The modest slowdown in pay increases, on its own, is unlikely to drive down inflation rapidly in the near-term." Berkshire Hathaway-BRKB purchased another 5,801,791 shares of Occidental Petroleum worth about $354.5 million at an average price of $61.10 per share between March 3 to March 7, 2023. This brings Berkshire’s stake in the company up to 22.2%. Those shares would generate about $144 million of annual dividends, following a 38% increase that Occidental announced last month. Berkshire also owns $10 billion of Occidental preferred stock that throws off $800 million of annual dividends, plus warrants to buy another $5 billion of common stock.Tuesday, March 7, 2023Fastenal-FAST reported February 2023 net sales and average daily sales each increased 9.6% for the month to $582.1 million and $29.1 million, respectively. Daily sales growth by geography was led by 15.8% growth in Canada/Mexico. Daily sales growth by end market was 15.8% growth in manufacturing partially offset by a 1.8% decline in non-residential construction. Daily sales growth by product line was 8.0% for fasteners, 3.2% for safety products and 13.8% for other products. Approximately 83% of the company’s Top 100 national accounts are growing which is down from 89% a year ago. About 59.5% of the company’s branches were growing compared to 76.9% a year ago. Total personnel increased 8.3% over the prior year period to 22,706. The rate of hiring for U.S. small businesses increased in February led by hiring in the leisure and hospitality industry according to the latest Paychex | IHS Markit Small Business Employment Watch. The Small Business Jobs Index, which measures national employment growth for businesses with fewer than 50 workers, continued to increase to 99.66 while the rate of hourly wage growth declined to 4.49 percent year-over-year in February. The one-month annualized hourly wage growth rate remained below four percent for the third consecutive month. "Small businesses have posted positive job gains to begin 2023," said James Diffley, chief regional economist at IHS Markit. "At the same time, hourly wage increases are moderating, which is in the right direction for a soft landing." Meta Platforms-META announced that Facebook is off to a great start this year with the company achieving a major milestone of 2 billion daily active users—the highest it has ever been. The company’s focus this year is on artificial intelligence, messaging, creators and monetization.Monday, March 6, 2023Pratt & Whitney, a Raytheon Technologies-RTX business, announced today that it has been awarded a $5.2 billion contract to support production of the 15th and 16th lots of F135 engines, with an option to award a 17th Lot, powering all three variants of the F-35 Lightning II fighter aircraft. The total contract value for lots 15-17, with exercised options, is approximately $8 billion and will fund over 418 F135 engines with options for the U.S. as well as international customers. Since program inception, Pratt & Whitney's "war on cost" efforts have reduced the average unit cost of an F135 by more than 50 percent, contributing to an estimated $8.1 billion in cumulative engine savings over the life of the program.Thursday, March 2, 2023Hormel Foods-HRL reported first quarter sales declined 2% to $2.9 billion, with net income and EPS declining 9% to $217 million and $.40, respectively. Volume and net sales declined for each segment due to lower fresh pork availability resulting from the company’s new pork supply agreement and lower turkey volumes due to the ongoing impacts of highly pathogenic avian influenza (HPAI) in the company’s vertically integrated turkey supply chain. In addition, Hormel faced incredibly difficult operating conditions in China throughout the quarter. Free cash flow declined 49% to $172 million with the company paying $142 million in dividends. Demand for Hormel’s leading retail brands remains favorable. Hormel is expecting strong growth in the foodservice segment for the remainder of the year and anticipates the near-term challenges for the international segment to abate over the coming months. Compared to expectations heading into the year, earnings are being pressured by increased inefficiencies across the supply chain related to higher inventory levels and softness in the snack nuts category. Management is taking action to address these challenges and expects improved business performance as the year progresses. For fiscal 2023, Hormel reaffirmed sales guidance, expecting sales growth of 1% to 3% and lowered earnings guidance, now expecting EPS in the range of $1.70-$1.82.Tuesday, Feb. 28, 2023Ross Stores-ROST rang up a 3.9% increase in fourth quarter sales to $5.2 billion with earnings up a fancy 22% to $447 million and EPS up a fashionable 26% to $1.31. Comp store sales increased 1% on an increase in transactions as traffic remained flat. By category, shoes sales, especially athletic shoes, were strong during the holiday season and regionally, Florida saw the strongest sales. Operating margin increased 90 basis points to 10.7%, mainly driven by lower freight costs and incentive costs that were partially offset by unfavorable timing of packaway-related expenses. For the year, Ross Stores reported sales dipped 1.2% to $18.7 billion on a 4% decline in same store sales with earnings falling 12.7% to $1.5 billion and EPS down 10.1% to $4.38. During 2022, Ross Stores generated a dressy 35.3% return on shareholders’ equity and free cash flow of $1.0 billion. The company returned nearly $1.4 billion to shareholders during the year through dividend payments of $431 million and share repurchases of $950.0 million, including $231 million during the fourth quarter at an average cost per share of $110. Company leadership expects to complete the $950 million remaining under its current share repurchase authorization during 2023. Reflecting its continued commitment to enhancing shareholder value and returns as well as confidence in the company’s future cash flows and the strength of its balance sheet, Ross Stores increased its quarterly dividend by 8% to $0.335 per share. Ross Stores ended the year with $4.55 billion in cash, $2.46 billion in long-term debt and $4.29 billion in shareholders’ equity on its impressive balance sheet. Looking ahead to 2023, given the highly uncertain macroeconomic and geopolitical environments, management expects same store sales to be flat generating sales growth of 1% to 4% thanks to a 53rd week with EPS between $4.65 to $4.95, up 10% at the midpoint from fiscal 2022. Capital expenditures are expected to top $800 million for the year, up over 20% from last year, as the company expects to open 100 new stores, invest in its distribution centers ramping up capacity to support expected growth and up its investments in technology including merchandise tools. Elevated inflation is expected to continue impacting the company’s low-to-moderate income customers.Monday, Feb. 27, 2023As part of Meta’s-META commitment to open science, the company is publicly releasing LLaMA (Large Language Model Meta AI), a state-of-the-art foundational large language model designed to help researchers advance their work in this subfield of artificial intelligence. Smaller, more performant models such as LLaMA enable others in the research community who don’t have access to large amounts of infrastructure to study these models, further democratizing access in this important, fast-changing field.Saturday, Feb. 26, 2023Berkshire Hathaway-BRKB reported the company had a good year in 2022 with revenues rising 9% to $302 billion and operating earnings increasing 12% to a record $30.8 billion. The company’s net worth during 2022 decreased by 6.7%, or $33.8 billion, to $472.4 billion with book value equal to about $323,600 per Class A share as of 12/31/22.On a GAAP basis, Berkshire reported a net loss of $22.8 billion during 2022 compared to $89.8 billion in earnings in the prior year period. Investment gains and losses from changes in the market prices of Berkshire’s substantial equity investments will produce significant volatility in earnings. The investment losses were primarily paper losses from changes in unrealized gains of equity holdings during the year given the stock market’s correction. Berkshire’s five major equity investment holdings which represent about 75% of total equities held, include American Express at $22.4 billion (which charged 10% lower during the year or $2.4 billion); Apple at $119 billion (which dropped 26.2% during the year or $42.2 billion); Bank of America at $34.2 billion (which declined $11.8 billion in value); and Coca-Cola with the stock popping 7% higher, or $1.7 billion, to $25.4 billion at the end of the year. Chevron rounds out the top five at $30 billion after Buffett purchased more than $20 billion of Chevron during the first quarter of 2022.In his letter to shareholders, Buffett reflected on a couple of his large holdings. In1994, Berkshire acquired Coca-Cola for $1.3 billion with its value growing to $25.4 billion at the end of 2022 while Berkshire’s annual dividends from Coca-Cola have steadily increased from $75 million to $704 million. American Express is much the same story with Berkshire’s purchase of American Express in 1995 at $1.3 billion growing to $22.4 billion at the end of 2022 while its annual dividends have steadily grown from $41 million to $302 million. Buffett concluded with this lesson for investors: “The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders. And yes, it helps to start early and live into your 90’s as well. “During 2022, Berkshire’s insurance businesses generated losses from underwriting of $90 million compared to underwriting gains last year of $728 million. Catastrophe losses during the year included $2.4 billion from Hurricane Ian. Underwriting results were also negatively impacted by increases in claims frequencies and severities at GEICO due to significant cost inflation in automobile markets. Thanks to premium rate increases, GEICO expects to generate an underwriting profit in 2023. 2022 underwriting results were favorably impacted by higher earnings from reinsurance underwriting and foreign currency exchange rate gains. Insurance investment income increased 35% during the year to $6.5 billion, reflecting higher dividend and interest income as interest rates increased significantly in 2022. The float of the insurance operations increased $17 billion to end the year at about $164 billion. The increase in float includes $14 billion related to the acquisition of Alleghany Corporation. Berkshire’s float has increased 8,000-fold since 1967 through acquisitions, operations and innovations and with disciplined underwriting these funds have a decent chance of being cost-free over time. The average cost of float was nominal in 2022 due to the $90 million underwriting loss during the year.Burlington Northern Santa Fe’s revenues chugged 12% higher during the year to $25.2 billion, reflecting higher revenue per car/unit, with net earnings dipping 1% to $5.9 billion due to lower overall freight volumes and higher average fuel and other operating costs. The 5.8% volume decrease for the year was in all business segments except for coal which was flat, reflecting supply chain disruptions, network challenges, lower demand for crude by rail and lower building products shipments.Berkshire Hathaway Energy reported revenues rose 5% during the year to $26.4 billion with net earnings rising 9% to $3.9 billion. The earnings increase reflected higher earnings from other energy businesses, including tax equity investments and the Northern Powergrid businesses, as well as from the natural gas pipeline businesses, partly offset by lower earnings from the real estate brokerage business.Berkshire’s Manufacturing businesses reported revenues rose 10% to $75.8 billion with operating earnings up 14% to $11.2 billion in 2022. The Buildings Products segment led the way for the year with revenues rising 16% to $28.9 billion and operating earnings jumping 41% to $4.8 billion thanks to strong demand for residential housing construction. However, significant increases in mortgage interest rates slowed demand for new housing construction during the fourth quarter so that comparative revenues and earnings in the near term will likely decline from current levels. Berkshire’s operations also were negatively impacted by supply chain disruptions and significant cost increases for raw materials, freight, labor and other input costs.Service and Retailing revenues increased 9% during the year to $91.5 billion with pre-tax earnings increasing 7% to $5.0 billion. The Service group led the way as revenue increased 20% to $19.0 billion with pre-tax earnings up 14% to $3.0 billion thanks to strong growth from TTI, reflecting strong demand in nearly all electronic component markets, and the aviation business services due to higher training hours at FlightSafety and significantly higher customer flight hours at NetJets. However, during the third quarter and fourth quarters, new orders slowed at TTI in part attributable to elevated inventory levels within the supply chain.Berkshire’s balance sheet continues to reflect significant liquidity and a very strong capital base of $472.4 billion as of 12/31/22. Excluding railroad, energy and utility investments, Berkshire ended the year with $487 billion in investments allocated approximately 63.4% to equities ($308.8 billion), 5.2% to fixed-income investments ($25.1 billion), 25.6% in cash and equivalents ($125.0 billion) and 5.8% in equity method investments ($28.0 billion) which includes 26.6% ownership of Kraft Heinz, 21.4% of Occidental Petroleum and 38.6% in Pilot Travel Centers as of year end.Free cash flow declined 16% during the year to $21.8 billion due to lower earnings and higher capital expenditures. During the year, capital expenditures approximated $15.5 billion, which included $11 billion for BNSF and BHE, its railroad and utility and energy units. Berkshire expects capital expenditures for 2023 for BNSF and BHE to approximate $13.7 billion.During 2022, Berkshire paid cash of $67.9 billion to acquire equity securities and received proceeds of $33.7 billion from the sale of stocks. The stock purchases included about $21 billion in Chevron, about $11 billion in Occidental Petroleum, about $6 billion in Activision Blizzard as an arbitrage play, $5 billion in German stocks and Japanese stocks, $4 billion in HP, Inc. and an undisclosed additional amount of Apple. In addition, Berkshire purchased a net $27.5 billion in Treasury Bills and fixed-income investments. In June 2022, Berkshire Hathaway Energy (BHE) acquired the BHE common stock held by Greg Abel, Berkshire’s Vice Chairman, for $870 million. On Oct. 19,2022, Berkshire completed its purchase of Alleghany, a property and casualty reinsurance and insurance business, for $11.5 billion in cash, which held cash and investments of $19.7 billion. On January 31, 2023, Berkshire acquired an additional 41.4% interest in Pilot for approximately $8.2 billion which brought Berkshire’s ownership of Pilot up to 80%.Berkshire repurchases its shares at prices below Berkshire’s intrinsic value, as conservatively determined by Warren Buffett and Charlie Munger. During 2022, Berkshire repurchased $7.9 billion of its common stock, including $2.6 billion in the fourth quarter. These repurchases included 584 Class A shares purchased at an average price of approximately $468,114 per share and 3,046,794 Class B shares purchased an average price of $303.83 per share during December 2022.On Aug. 16, 2022, the Inflation Reduction Act was signed into law. The 2022 act contains numerous provisions including a 15% corporate alternative minimum tax, expanded tax credits for clean energy incentives and a 1% excise tax on corporate stock repurchases, which all become effective in 2023. Berkshire currently does not expect a material impact on its financial statements from the act.