Paper gains on derivative contracts helped Berkshire Hathaway Inc triple its third-quarter profit as its insurance businesses did well, but Warren Buffett’s company said on Friday that many of its other operating businesses struggled.
The Omaha-based company delivered relatively flat results made to appear spectacular by the unrealized investment gains. The strength of its insurance businesses like Geico offset weakness in those more tied to the economy, like NetJets and Berkshire’s manufacturing businesses.
“I thought it was pretty much as predicted, but still in good, solid shape,” said Andy Kilpatrick, the stockbroker-author of Of Permanent Value, the Story of Warren Buffett.
Berkshire said it generated US$3.2 billion, or US$2,087 per share, in net income. That’s up significantly from last year’s US$1.1 billion, or US$682 per share. The results don’t include Berkshire’s headline-grabbing US$26.3 billion acquisition of railroad operator Burlington Northern Santa Fe Corp, which was announced on Tuesday.
Most of the swing in Berkshire’s earnings is related to an unrealized US$1.1 billion gain on its derivatives, some of which are tied to credit defaults and some of which are tied to equity markets. That compares with an unrealized US$819 million loss on Berkshire’s derivatives in last year’s third quarter.
Excluding the investment and derivative gains, Berkshire’s operating earnings were nearly flat at US$2.06 billion, or US$1,325 per share. Last year, Berkshire reported operating earnings of US$2.07 billion, or US$1,335 per share.
“Most of the businesses here remain pretty sluggish with a couple bright spots in insurance,” said Justin Fuller, a partner with Midway Capital Research & Management in Chicago who writes about Berkshire online at www.buffettologist.com.
Operating profit in Berkshire’s insurance underwriting business, which includes Geico and General Reinsurance, soared to US$363 million from US$81 million a year ago thanks partly to this year’s relatively quiet hurricane season.
Berkshire’s insurance units also reported better investment income of US$976 million in the quarter, up from US$809 million a year ago.
Non-insurance companies, which includes Shaw carpet, Acme Brick, Nebraska Furniture Mart and NetJets, generated an operating profit of US$774 million in the quarter, down from US$1.1 billion a year ago.
The group of Berkshire manufacturing businesses that includes Acme Brick, Benjamin Moore paint, Forest River RVs and Iscar Metalworking delivered sharply lower net income because of the recession. Those businesses generated US$293 million in the quarter, down from US$478 million a year ago.
Berkshire’s utility unit, MidAmerican Energy Holdings, contributed US$346 million in net income to the company, up from US$324 million a year ago. Those results improved slightly because of lower costs.
Berkshire generated US$5 billion, or US$3,223 per share, in net income through the first nine months of the year. That’s up slightly from last year’s nine-month profit of US$4.9 billion, or US$3,149 per share.
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