Warren Buffett’s company on Friday reported a 14 percent jump in second-quarter profit as the improving stock market boosted the value of Berkshire Hathaway Inc’s derivative contracts, although the recession continued to weigh on its operating businesses.
The Omaha-based company reported US$3.3 billion in net income, or US$2,123 per share, for the quarter ending June 30.
The figure represents an increase from US$2.88 billion, or US$1,859 per share, in the same period a year ago.
The three analysts surveyed by Thomson Reuters on average expected Berkshire to report earnings per share of US$1,238.38.
“The headline number looks better because of the derivatives, but it wasn’t the greatest quarter,” said analyst Justin Fuller, who works with Midway Capital Research & Management in Chicago and writes about Berkshire online at www.buffettologist.com.
Berkshire executives typically do not comment on quarterly earnings reports, and they did not respond to an interview request on Friday.
The value of Berkshire’s derivative contracts tied to equity indexes soared during the second quarter, and Berkshire recorded a mostly unrealized US$1.5 billion gain on its derivatives. That result contrasts sharply with the unrealized US$986 million derivative loss Berkshire recorded in the first quarter, and through the first half of this yeat, Berkshire recorded an unrealized US$1.7 billion loss on its derivative contracts.
Berkshire generated revenue of US$29.61 billion in the quarter, down slightly from US$30.09 billion a year ago. The company’s two largest business segments, insurance and utilities, performed moderately well in the quarter, but most of its other subsidiaries struggled because of the weak economy.
In Berkshire’s insurance businesses, which includes Geico and General Reinsurance, underwriting profit fell to US$83 million from US$360 million because the strength of foreign currencies hurt the value of some Berkshire reinsurance reserves that are denominated in foreign currencies such as the euro and British pound.
But insurance investment income offset that by increasing to US$1.16 billion from US$884 million.
Berkshire’s utility division, MidAmerican Energy Holdings Co, contributed US$253 million net income in the quarter. That’s 22 percent higher than the US$208 million net income MidAmerican generated a year ago.
Berkshire said net income plummeted 67 percent at its manufacturing, retail and service businesses to US$239 million from US$719 million, which include many businesses tied to the housing market such as Shaw Carpeting and Acme Brick.
Andy Kilpatrick, the stockbroker-author of Of Permanent Value, the Story of Warren Buffett, said even with the challenges Berkshire’s operating businesses face, Buffett is still delivering better results than many companies.
“He’s grinding out a decent year — one way or another,” Kilpatrick said.
In the first half of this year, Berkshire generated US$1.76 billion in net income, or US$1,136 per share. That’s down 54 percent from the previous year, when Berkshire reported US$3.82 billion net income, or US$2,467 per share.
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