Business

Berkshire profit rises 46 points, helped by economy

August 03, 2013
Latest Update: August 03, 2013 05:11 pm

Berkshire Hathaway CEO Warren Buffett (R) gestures before a table tennis game in Omaha in this photo from May 5, 2013. Warren Buffett's Berkshire Hathaway Inc yesterday, said second-quarter profit rose 46%, reflecting gains from investments and derivatives and higher earnings from non-insurance businesses. - Reuters pic, May 5, 2013.Berkshire Hathaway CEO Warren Buffett (R) gestures before a table tennis game in Omaha in this photo from May 5, 2013. Warren Buffett's Berkshire Hathaway Inc yesterday, said second-quarter profit rose 46%, reflecting gains from investments and derivatives and higher earnings from non-insurance businesses. - Reuters pic, May 5, 2013.Warren Buffett's Berkshire Hathaway Inc yesterday said second-quarter profit rose 46%, boosted by improved demand in such businesses as car insurance, energy and railroads, as well as gains from investments and derivatives.

Operating results topped analyst forecasts, reflecting how many of Berkshire's more than 80 businesses are benefiting from growth, however modest, in the US economy.

"It's about as good as you could expect," said Jeff Matthews, a Berkshire shareholder and author of "Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett".

"Berkshire's earnings are very similar to the economy - not shooting the lights out but still growing."

Buffett, who turns 83 later this month, has run Omaha, Nebraska-based Berkshire since 1965, and favors businesses with consistent earnings power.

In June, he spent US$12.3 billion (RM40.1 billion) to buy part of HJ Heinz Co, the maker of ketchup and Ore-Ida potato products.

A month earlier, the world's fourth-richest person told shareholders at that in looking for companies to buy, "we're going to find most of our opportunities in The United States."

Quarterly net income for Berkshire rose to US$4.54 billion, or US$2,763 per Class A share, from US$3.11 billion, or US$1,882 per share, a year earlier.

Operating profit rose 5% to US$3.92 billion, or US$2,384 per Class A share, from US$3.72 billion, or US$2,252 per share.

Analysts on average expected operating profit of US$2,170 per share, according to Thomson Reuters I/B/E/S.

Revenue rose 16% from a year ago to US$44.69 billion. Book value per Class A share, Buffett's preferred measure of growth, rose 2% from the end of March to US$122,900.

Burlington Northern, Geico

Profit rose 10% at the Burlington Northern Santa Fe railroad to US$884 million as higher revenue from shipping consumer products, industrial products and coal offset lower revenue from agricultural products.

Rising prices and higher customer loads helped drive a 10% increase in profit from its MidAmerican Energy utilities and energy unit to US$279 million.

Meanwhile, pretax underwriting gains more than doubled at the Geico car insurance unit to US$336 million, as premiums earned grew by 11% while underwriting expenses fell.

Businesses benefiting from growing sales included the NetJets corporate plane unit, the Clayton Homes manufactured housing unit, and the Forest River recreational vehicle unit.

Other businesses fared less well. Underwriting gains in reinsurance operations, including General Re, declined in part from catastrophe losses tied to European floods.

Berkshire also said growing price competition and "relatively sluggish customer demand in certain markets" hurt earnings at its Iscar metalworking, Lubrizol specialty chemical and Fruit of the Loom underwear businesses.

Heinz reduces Berkshire cash stake

The quarter also included US$622 million of net gains from investments and derivatives, compared with a year-earlier US$612 million net loss.

Accounting rules require Berkshire to report these sums with its earnings, and Buffett believes the amounts in any given quarter are often meaningless.

The company's cash stake shrank during the quarter to US$35.7 billion from US$49.1 billion, largely reflecting the purchase of Heinz by Berkshire and Brazilian investment firm 3G Capital.

Another US$5.6 billion in cash will go toward the purchase of Nevada utility NV Energy Inc by MidAmerican Energy, which is expected to close in the first quarter of 2014.

And this week, building supply unit MiTek Industries said it bought Benson Industries LLC, which designs curtain wall systems for buildings such as One World Trade Center and the United Nations Secretariat, for an undisclosed price.

Berkshire also owns tens of billions of dollars of common stocks such as Coca-Cola Co, International Business Machines Corp and Wells Fargo & Co.

In yesterday's trading, Berkshire Class A shares closed up US$800 at US$176,500. Its Class B shares rose 54 cents to US$117.82. - AFP, August 3, 2013.

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