OMAHA (Nebraska), May 4 — Warren Buffett’s Berkshire Hathaway Inc yesterday said quarterly profit rose nearly 51 per cent on a solid performance in insurance and by many of its other businesses, as well as gains from investments and derivatives.
The results topped expectations and were released after Berkshire shares closed at a record high.
Berkshire’s more than 80 businesses are benefiting from a strengthening economy, as illustrated by increased traffic on its Burlington Northern railroad unit, new customers for its McLane food distribution business, and stepped-up demand for its Forest River recreational vehicles, to name just a few.
Profit from insurance operations, including the Geico car insurance unit and a business that provides protection against major catastrophes, roughly doubled.
“The happy fact right now is that the growth areas in the economy are right in Berkshire’s wheelhouse,” said Jeff Matthews, founder of the RAM Partners LP hedge fund and author of “Pilgrimage to Warren Buffett’s Omaha.”
Berkshire released its results a day before Buffett and Berkshire Vice Chairman Charlie Munger will field five hours of shareholder questions at the company’s annual meeting in its hometown of Omaha, Nebraska.
Profit tops forecasts
Net income increased to US$4.89 billion (RM14.8 billion), or US$2,977 per Class A share, from US$3.25 billion, or US$1,966 per share, a year earlier.
Quarterly operating profit rose 42 per cent to US$3.78 billion, or US$2,302 per share, from US$2.67 billion, or US$1,615 per share.
Analysts on average expected profit of US$1,996 per share, according to Thomson Reuters I/B/E/S.
Book value per share, Buffett’s preferred measure of growth, increased 5.5 per cent from year end to US$120,525 per Class A share, and Berkshire’s cash stake grew over that period to US$49.09 billion from US$46.99 billion.
About US$12.1 billion is being used to fund a purchase by Berkshire and Brazilian investment firm 3G Capital of ketchup maker H.J. Heinz Co.
Revenue rose 15 per cent from a year ago to US$43.87 billion.
Operating profit from insurance operations rose to US$1.7 billion from US$845 million.
Nearly all the improvement came from underwriting, where profit rose to US$901 million from US$54 million, in part because of a US$255 million pre-tax reinsurance gain, as well as currency fluctuations. Underwriting profit at Geico more than doubled.
“The backbone of Berkshire is its world class collection of insurance companies,” said David Rolfe, chief investment officer at Wedgewood Partners Inc, which invests 6.5 per cent of its US$4 billion of assets in Berkshire stock.
Operating profit from noninsurance business rose 12 per cent to US$2.25 billion.
This included increases of 14 per cent at Burlington Northern to US$798 million, and a little over 10 per cent from manufacturing, service and retail operations to US$944 million.
Profit generated by MidAmerican Energy, a utility unit that Berkshire owns most of, rose 17 per cent to US$394 million.
Investment and derivatives gains nearly doubled to US$1.11 billion, in part because of gains related to Berkshire’s warrants for General Electric Co and Goldman Sachs Group Inc.
Berkshire also owns tens of billions of dollars of common stocks such as Coca-Cola Co, International Business Machines Corp and Wells Fargo & Co.
Gains from derivatives increased 20 per cent before taxes, mainly because of Berkshire’s long-term contracts related to performance in stock indexes such as the Standard & Poor’s 500, which rose 10 per cent in the first quarter.
Investors are used to that volatility, and Berkshire accepts it as part of its focus on the long term.
“If we cope well every day with what’s on our desk, the future will take care of itself,” Munger said in an interview yesterday.
In Friday trading, Berkshire Class A shares closed up US$1,993, or 1.2 per cent, at US$162,850. Its Class B shares closed up US$1.34, or 1.2 per cent, at US$108.64. — Reuters