Warren Buffett's Berkshire Hathaway Inc on Friday said quarterly earnings tripled, as rising stock markets boosted its investment holdings and a quiet hurricane season contributed to higher insurance profit. Results were announced three days after Buffett revealed the biggest acquisition in his 44 years running Berkshire, a $26 billion take-over of Burlington Northern Santa Fe Corp Berkshire had already owned 23 percent of the nation's second-largest railroad operator.
Third-quarter net income for Omaha, Nebraska-based Berkshire rose to $3.24 billion, or $2,087 per Class A share, from $1.06 billion, or $682, a year earlier. Excluding investments, operating profit fell less than 1 percent to $2.06 billion, or $1,325 per share, from $2.07 billion, or $1,335.
On that basis, analysts expected profit of $1,308.25 per share, according to Thomson Reuters I/B/E/S. Revenue rose 7 percent to $29.9 billion, though Berkshire said the effects of a global recession hurt results for several manufacturing, apparel and retailing units, as some customers "dramatically" reduced spending.
"These operating subsidiaries are so sensitive to the economic climate," said Bill Bergman, an analyst at MorningstarInc in Chicago. "It will be worth watching." Berkshire's growing diversification has made it more of a bellwether for the US economy. Its roughly 80 operating units sell such things as Geico car insurance, Dairy Queen ice cream, Benjamin Moore paint and Fruit of the Loom underwear.
Insurance underwriting profit more than quadrupled to $363 million, helped mainly by reinsurance operations and despite a decline at Geico, while insurance investment income rose 21 percent to $976 million. Results benefited from the quietest Atlantic hurricane season in more than a decade.
Only a single named storm, Claudette, made US landfall. Operating profit in noninsurance businesses, in contrast, fell 28 percent to $774 million. Berkshire also benefited as rising stock markets boosted the value of investments in companies such as Coca-Cola Co, Goldman Sachs Group Inc Procter & Gamble Co and Wells Fargo & Co.
Results included $1.18 billion of investment and derivatives gains, mainly from derivatives contracts tied to junk bond credit quality and to a lesser extent to performance of four stock indexes in the United States, Europe and Japan. Berkshire's book value ended September at $126.07 billion, or $81,247 per share, up 10 percent from three months earlier and 15 percent from year end.
Buffett often touts book value, which reflects assets minus liabilities, as a good gauge of Berkshire's health. Steven Check, who oversees Check Capital Management in Costa Mesa, California, noted that book value is 4 percent higher than at the start of 2008, despite a 27 percent drop in the Standard & Poor's 500 "Buffett has made back everything he lost in 2008, and then some," he said.
Class A shares of Berkshire closed Friday up $500 at $102,400, while Class B shares rose $30 to $3,425. Both are about one-third below their record highs set in December 2007. Berkshire plans to conduct a 50-for-1 split of its B shares. It announced the split in connection with the Burlington take-over, which is expected to close in the first quarter of 2010.
Such a split would made it easier for ordinary investors to buy Berkshire stock. Berkshire has had two profitable quarters since the January-to-March period, when it had its first loss since 2001. Quarterly results are volatile because accounting rules require Berkshire to report derivative gains and losses with earnings.
Rising stocks reduced the accumulated paper losses on Berkshire's stock derivatives contracts to $8.01 billion on September 30 from $8.23 billion three months earlier. The contracts mature between 2018 and 2028, and Buffett has said he expects them to be profitable.Berkshire had $26.92 billion of cash as of September 30.
Profit fell 49 percent to $336 million in manufacturing, services and retailing, including such businesses as the industrial company Marmon Holdings, carpet maker Shaw, and several jewellery and home furnishings businesses. The NetJets Inc private jet unit lost $183 million pre-tax, hurt by writedowns and falling sales.
Berkshire said NetJets owns too many planes and will incur more "downsizing costs" in the fourth quarter, but could turn a "modest" profit in 2010. Profit from utilities and energy, including MidAmerican Energy and PacifiCorp, rose 7 percent to $346 million.