Berkshire Profit Rises 51% on Insurance, Buffett's Investments

Saturday, 04 May 2013 11:23 AM

 

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Berkshire Hathaway's first-quarter profit jumped 51 percent as its insurance companies performed well and the value of its investments soared.

Warren Buffett's firm said Friday it earned $4.89 billion, or $2,977 per Class A share. That's up from last year's $3.25 billion net income, or $1,966 per Class A share.

The Omaha-based conglomerate said its revenue grew 15 percent to $43.87 billion over last year's $38.15 billion. The earnings report was released as thousands of Berkshire shareholders were gathering in Omaha for Saturday's annual meeting.

Berkshire officials don't generally comment on quarterly earnings reports, and no one responded to a message Friday about the first-quarter results. But Buffett will likely discuss the earnings report briefly at Saturday's annual meeting.

Berkshire's insurance companies, which include Geico and General Reinsurance, generated $901 million in underwriting profit because there were no major losses in the quarter. That's far better than last year's $54 million.

The value of Berkshire's investments and derivatives soared to $1.1 billion from $580 million.

Part of what caused that swing in value was a $520 million gain recorded in this year's first quarter on the value of Berkshire's warrants for Goldman Sachs and General Electric stock. Both Goldman and GE reached agreements with Berkshire to redeem the company's warrants for a certain number of shares.

The mostly paper investment gains included an estimated $784 million gain this year on derivative contracts Berkshire holds. Last year, those derivatives, which are mostly tied to the value of certain stock market indexes, contributed $650 million.

The true value of the derivatives won't be clear for at least several years because they won't mature until then. But Berkshire must estimate their value every time the company reports earnings. Buffett has told investors he believes the contracts will ultimately be profitable.

Buffett continues to have plenty of cash available for investments and acquisitions as he hunts for big deals to boost Berkshire's profits. At the end of the first quarter, Berkshire had $49.1 billion cash on hand, up from $37.8 billion a year ago.

The BNSF railroad also performed well in the first quarter and contributed $798 million to Berkshire's first-quarter profit. That's up from last year's $701 million thanks to significant growth in crude oil shipments and a total volume increase of 3 percent.

Berkshire's utility unit, led by MidAmerican Energy Holdings, generated $394 million net income in this year's first quarter, up from $338 million last year.

Berkshire's manufacturing, service and retail companies also improved in the quarter as the economy slowly improved and the housing market continued to pick up. Several of Berkshire's companies are tied to the housing market, like Shaw carpet and Acme brick, so Berkshire's results have been helped by the recent increase in home construction.

That manufacturing and retail group of Berkshire's varied businesses contributed $944 million to first-quarter net income, up from $854 million the previous year.

Berkshire's operating earnings were $3.78 billion in the first quarter, up 42 percent from last year's $2.67 billion. Buffett has said Berkshire's operating earnings are a better measure of how the company is performing in any given period, because those figures exclude the value of derivatives and investment gains or losses.

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.

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