Berkshire profits double as insurance losses fall

Last Updated: Sat, May 05, 2012 00:00 hrs

By Ben Berkowitz

OMAHA, Nebraska (Reuters) - Warren Buffett's Berkshire Hathaway more than doubled its profit in the first quarter, as the conglomerate's insurance business was spared from the devastating natural disaster losses that hit the company a year earlier.

The company also benefited from much higher gains in its derivatives portfolio, offset in part by a substantial writedown on one of its bond holdings.

The results come one day before the conglomerate's annual shareholder meeting, a festival-like event dubbed the "Woodstock for Capitalism" that draws nearly 40,000 investors to Omaha.

Even before the results came out, though, one Berkshire investor said his fellow shareholders were much more likely to focus on succession issues for the 81-year-old Buffett than other questions like the quarterly report.

"If you boil it down, most people say: 'who's the replacement going to be,'" said Harvey Eisen, chairman of Bedford Oak Advisors.

Net income attributable to Berkshire shareholders more than doubled to $3.25 billion, or $1,966 per share, from $1.51 billion, or $917 per share, last year.

First-quarter operating profit rose to $2.67 billion, or $1,615 per Class A share. Analysts expected operating profit of $1,780 per share, according to Thomson Reuters I/B/E/S.

Revenue rose 13 percent to $38.15 billion, and Berkshire ended the quarter with $37.83 billion of cash and equivalents, up around $500 million from the beginning of the year.

Berkshire posted a $54 million insurance underwriting profit in the quarter. That compared with a year-earlier $821 million loss, when results were hurt by costs for earthquakes in Japan and New Zealand and floods and a cyclone in Australia.

Within the insurance group, underwriting gains at auto insurer GEICO fell sharply, in large part on accounting changes related to how insurers recognize the cost of acquiring customers. Losses narrowed in the reinsurance business as well.

Berkshire said profit from railroad operations, including the former Burlington Northern Santa Fe Corp, rose 15 percent to $701 million.

Meanwhile, profit from manufacturing, service and retailing operations rose 53 percent to $854 million. That in part reflected Berkshire's $9 billion acquisition of the chemical company Lubrizol Corp.

Berkshire also saw a nearly four-fold increase in the gains on its portfolio of derivatives, to $650 million. Those derivatives are largely contracts related to stock market performance, a bet Buffett has said would pay off handsomely over time despite his usual disdain for such instruments.


Results were hurt, though, by a $337 million loss on Texas Competitive Electric Holdings bonds, according to Berkshire's quarterly report. The bonds issued by the former TXU were "a big mistake," Buffett told Berkshire shareholders in his annual letter earlier this year.

Berkshire has roughly 80 operating units, including many consumer-oriented businesses that sell such things as apparel, furniture, ice cream and paint. Earlier Friday, senior Berkshire executives said they were seeing signs of slow but steady economic growth as consumers increase spending.

The company's Class A shares closed Friday up $150 at $121,950, and its Class B shares closed down 32 cents at $80.94. Berkshire released quarterly results after U.S. markets closed.

The company also noted that it did not buy back any stock during the first quarter. Earlier Friday, noted investor Mario Gabelli, a prominent figure at the Berkshire annual meeting, said he thought the shares were at least 50 percent undervalued. A number of analysts have also said Berkshire shares were trading near historical lows.

(Reporting By Jonathan Stempel in New York and Ben Berkowitz in Omaha; Editing by Bernard Orr)

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