Tags: US | Earns | Berkshire | Hathaway

Buffett's Berkshire: Economy, BNSF Deal Fueled $3.6 Billion Profit

Monday, 10 May 2010 03:19 PM

 

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Berkshire Hathaway Inc. says it benefited from an improving economy and investment gains related to its acquisition of BNSF railroad in the first quarter as it rebounded from last year's loss to deliver $3.6 billion in net income.

Berkshire said it earned $2,272 per Class A share during the quarter. That's after last year's loss of $1.5 billion, or $990 per share, as it wrote down the value of its ConocoPhillips investment.

Chairman and CEO Warren Buffett discussed the highlights of Berkshire Hathaway's quarterly earnings at the recent shareholders' meeting but didn't release detailed information about the quarter until Friday.

The four analysts surveyed by Thomson Reuters expected Berkshire to report earnings per share of $1,101.83 on average.

Berkshire officials don't typically comment on earnings reports and they didn't immediately respond to a message Friday.

Berkshire's revenue grew to $32 billion in the first quarter from last year's $22.8 billion.

The addition of Burlington Northern Santa Fe railroad helped boost Berkshire's net income in two ways.

Berkshire adjusted the value of its BNSF holdings after completing the acquisition in February for a $979 million paper gain. It held 76.8 million shares of BNSF stock before the deal.

The addition of Burlington Northern also added $282 million net income for Berkshire between the day the acquisition closed on Feb. 12 and the day the quarter ended on March 31.

Buffett has said the quarterly results showed that the economy is improving because Berkshire's manufacturing and retail income grew 85 percent to $477 million. Most of the improvement in that sector came from manufacturing businesses like the Iscar tool makers, apparel companies like Fruit of the Loom, and luxury good sellers like Forest River RVs and Berkshire's jewelry businesses.

Justin Fuller, who is a partner with Midway Capital Research & Management in Chicago, said Berkshire's results should be encouraging for people worried about the economy.

"As goes the United States, goes Berkshire. It's just become a much more economically sensitive company than it used to be," said Fuller, who writes about Berkshire online at http://www.buffettologist.com.

Berkshire's utilities and insurance companies, which include Geico and General Reinsurance, delivered solid results that improved slightly over last year.

Insurance underwriting profit increased to $226 million from last year's $202 million.

Berkshire's utilities, led by MidAmerican Energy, added $223 million net income, up from $203 million a year ago.

Morningstar analyst Bill Bergman said Berkshire's operating businesses are definitely improving, but there is still room to grow because the businesses tied to housing, such as Shaw carpet, Acme brick and Benjamin Moore paint, have yet to see much increase.

"They're not hitting on all cylinders, but they're hitting on a lot more of them these days," Bergman said.

Berkshire's report suggests that it sold some of its stake in Procter & Gamble during the quarter to help raise cash for the $26.7 billion BNSF acquisition. Berkshire said the cost basis for its Procter & Gamble shares fell to $4.5 billion at the end of March from $5 billion at the end of 2009.

But even after the BNSF deal, Berkshire finished the quarter with $25.7 billion cash on hand. That's slightly higher than the $25.6 billion it held at the same time last year and less than the $30.6 billion Berkshire held at the start of 2010.

Last year's quarterly loss included a $1.9 billion charge from writing down Berkshire's ConocoPhillips investment, and a largely unrealized $986 million paper loss on its derivatives portfolio.

This year's first-quarter results included a $267 million gain on the value of Berkshire's derivatives.

Berkshire executives say the company's operating earnings are a better measure of how the company is performing in any given period because those figures exclude its derivatives and investment gains or losses. Berkshire said its operating earnings increased to $2.2 billion in this year's first quarter, up from last year's $1.7 billion.

Berkshire owns roughly 80 businesses, including clothing, insurance, furniture, utility, jewelry and corporate jet companies. Berkshire also has big investments in companies including Coca-Cola Co. and Wells Fargo & Co.

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