Berkshire reports a runner-up year

New subsidiary Burlington Northern chipped in big, but Buffett & Co. didn’t beat the S & P 500’s total return.

Berkshire Hathaway reported today that its per-share book value rose last year by 13%–a gain helped out by the banner results of Berkshire’s early-2010 acquisition, Burlington Northern Santa Fe.

But Berkshire’s 13% result lagged the 15.1% total return of the S & P 500, which is the performance indicator that Berkshire’s chairman, Warren Buffett, always hopes to beat.

Buffett has in fact done that in 38 out of the 46 years he’s run Berkshire (BRKA),(BRKB). But with the company’s non-stop growth—to $136 billion in revenues last year—the job has clearly become much tougher. Half of Buffett’s defeats by the S & P 500 have come in the last decade (in 2003, 2004, 2009, and 2010).

Buffett tells shareholders in his annual letter, published today in Berkshire’s annual report, that they shouldn’t expect the company’s “bountiful years” for returns to come back. “The huge sums of capital we currently manage eliminate any chance of exceptional performance,” he writes.

Per-share book value changes are the customary way that Buffett reports shareholder results because this method incorporates all of Berkshire’s capital gains and losses, whether these are realized or not. Under the more commonly used standard of net income (which does not reflect unrealized gains and losses) Berkshire reported a total of $13 billion. Per share, earnings for 2010 were $7,928 vs. $5,193 in 2009.

Buffett, however, devotes part of his annual letter to ridiculing those very figures, which at Berkshire, he says, tend to be “meaningless.” That’s because he could cause net income in any given period to be almost any number he’d like by reaching into Berkshire’s huge store of unrealized capital gains (well over $30 billion at yearend) and realizing a portion of them.

But Buffett says that he and Berkshire’s vice chairman, Charlie Munger, don’t play that game. The two, he says, have never sold a security because of the effect that a sale would have on the net income about to be reported.

Focusing on the figures he does think important—gains in Berkshire’s book value–Buffett for the first time included in his annual letter a table of performance for each five-year period since he took over management of Berkshire in 1964. These figures show that the company’s book-value gain outdid the S & P 500’s total return in every one of the 42 periods that have elapsed.

In the last five years, 2006 through 2010, Berkshire’s superiority was 7.7 percentage points. That span of time benefited from a huge, though hardly heartwarming, win for Berkshire in the disaster year of 2008: The total return for the S & P 500 that year was -37% while Berkshire held its loss to -9.6%.

That yawning gap partly existed because the performance of Berkshire’s stock investments has become less important to the company’s total results as it has added one operating business after another to its roster.

Buffett implicitly recognized that change in his comments about how Berkshire might perform in the future. Uncertainty reigns, of course. But Buffett says, “We will almost certainly produce better relative results in bad years for the stock market and suffer poorer results in strong markets.”

Another figure that Buffett seldom focuses on, because mere size has never interested him, is revenues. But the $136 billion that Berkshire reported for 2010 is enough to vault it into the top ten in the FORTUNE 500, whose figures the magazine will be publishing on May 5th. In the 2009 list, Berkshire was No. 11, with $112 billion in revenues.

Berkshire’s jump obviously won’t dislodge Wal-Mart, which had revenues of $419 billion, from the lead spot. But Berkshire’s total revenues were only $50 million in 1964, when Buffett took over. So getting to $136 billion and the top ten in this one man’s lifetime is no mean feat.

Two Berkshire subsidiaries account for much of the big revenues figure. The acquisition of Burlington Northern added about $15 billion to Berkshire’s 2010 revenues (and $2.2 billion to net income). The other major contributor of revenues—a perennial star in this department–was McLane, which reported $32.7 billion.

McLane is a distributor of food products, cigarettes, candy and sundries—and in 2010 also bought a wine and spirits distribution business. It’s a retailer, though, and therefore subsists on low margins. McLane’s pretax earnings last year were a record $369 million—but that’s not much more than 1 cent per dollar of revenues.

McLane, by the way, used to belong to Wal-Mart (WMT). Berkshire bought it in 2003. So, once again, what goes around comes around.

The writer of this article, FORTUNE senior editor-at-large Carol Loomis, is a friend of Warren Buffett’s and a Berkshire shareholder. She has been the pro bono editor of his annual chairman’s letter for more than 30 years.

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