Berkshire Hathaway’s 2Q profit declines 9 percent

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OMAHA, Neb. (AP) — Second-quarter profits at Warren
Buffett’s Berkshire Hathaway Inc. fell 9 percent because of bigger paper
losses on derivatives the company sold, but many of its subsidiaries
performed well.
The company reported that profits were up in
Berkshire’s insurance units. And business improved at the conglomerate’s
utility, railroad, manufacturing and retail businesses.
"It was
obviously a solid rebound in insurance, but what was really terrific was
the non-insurance subsidiaries," said David Rolfe, chief investment
officer at Wedgewood Partners, which invests in Berkshire.
The
Burlington Northern Santa Fe railroad added $802 million to Berkshire’s
net income this year, up from $690 million a year ago. Revenue at the
railroad grew about 6 percent thanks to fuel surcharges and a 2 percent
increase in total shipping volume. More shipments of consumer goods and
industrial products offset weak coal demand.
The addition of
specialty chemical maker Lubrizol, which Berkshire acquired last
September, also helped profits. Lubrizol added $322 million to
Berkshire’s pretax profits in the quarter. That helped Berkshire’s
manufacturing, service and retail unit generate just over $1 billion net
income, up from $789 million last year.
Berkshire also said its
housing-related business — which include Shaw carpet, Acme Brick,
numerous real estate brokerages and the Nebraska Furniture Mart — all
showed improvement in the second quarter.
Jeff Matthews, an
investor who wrote "Secrets in Plain Sight: Business & Investing
Secrets of Warren Buffett," said Berkshire recorded a good quarter
overall with no big surprises.
Matthews said even though
Berkshire’s housing-related businesses improved, many of its other
manufacturing and retail units reported weaker demand. That raises
concerns about the strength of the overall economy.
Berkshire
officials do not typically comment on quarterly earnings reports, and
they did not immediately respond to a message Friday afternoon.
The
lack of major catastrophes in the world this year helped Berkshire’s
insurance companies, which include Geico and several reinsurance firms,
improve significantly. Last year, Berkshire’s insurance companies
incurred $1.2 billion in catastrophe losses related to the earthquakes
in Japan and New Zealand and other weather losses in the U.S. and
Australia.
Berkshire’s insurance companies added $619 underwriting profit this year, compared to a $7 million
underwriting loss last year.
Berkshire
said it generated $3.1 billion net income, or $1.25 per Class B share.
That’s down from last year’s second quarter net income of $3.4 billion,
or $1.38 per Class B share. And last year’s quarter was helped by a
one-time $1.25 billion gain.
The results topped the $1.19 per share Wall Street was expecting, according to a FactSet survey.
Berkshire’s revenue grew slightly to $38.5 billion from $38.3 billion.
Buffett
has said it’s better to look at Berkshire earnings without the
derivative losses and investment gains. He says Berkshire’s investment
and derivative gains or losses can be misleading because the company
rarely sells its investments.
Berkshire reported a 37 percent
increase in its operating profit. Berkshire reported $3.7 billion in
operating earnings, or $1.50 per Class B share. That’s up from $2.7
billion, or $1.09 per Class B share, last year.
Berkshire recorded
a $693 million loss on its derivative contracts in this year’s second
quarter. That’s up from a $120 million loss last year.
The true
value of the derivatives won’t be clear for at least several years
because they don’t mature until nearly a decade from now. But Berkshire
is required to estimate their value every time the company reports
earnings.
Buffett has told investors he believes the contracts —
some of which are tied to equity markets and some of which are tied to
credit defaults — will ultimately be profitable because the premiums are
being invested.
Andy Kilpatrick, the stockbroker-author who wrote
"Of Permanent Value: The Story of Warren Buffett," said the results are
impressive because during the second quarter Europe’s debt woes
increased and the overall economy slowed.
"I thought it was a good decent quarter in a bad world," Kilpatrick said.
Berkshire
owns roughly 80 subsidiaries, including clothing, furniture and jewelry
firms. Its insurance and utility businesses typically account for more
than half of the company’s net income. It also has major investments in
such companies as Coca-Cola Co. and Wells Fargo & Co.
The
quarterly results were issued after the stock market’s close Friday.
Berkshire’s Class B shares rose more than 1 percent in after-hours
trading Friday before giving up some ground to trade up 57 cents at
$86.15.
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Online:
Berkshire Hathaway Inc.: www.berkshirehathaway.com
Copyright 2012 The Associated Press.

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