Warren Buffett’s company said on Friday its second-quarter profit jumped 74 percent because the value of its derivative contracts increased and several of its non--insurance businesses improved.
Berkshire Hathaway’s quarterly results were also aided by a one-time gain of US$1.25 billion from Goldman Sachs’ repayment of an investment Buffett’s company made at the height of the financial crisis in 2008.
Berkshire said it generated US$3.4 billion in net income, or about US$1.38 per Class B share, in the quarter that ended on June 30. Excluding investment and derivative gains, it earned US$1.09 a share. That’s nearly double last year’s results and better than the adjusted US$1.08 per Class B shares analysts had expected.
The Omaha-based company said its revenue grew 21 percent to US$38.3 billion in this year’s quarter. A year ago, Berkshire reported US$31.7 billion in revenue. Buffett is Berkshire’s chairman and CEO.
Last year, US$1.4 billion in pretax paper losses on Berkshire’s derivative contracts clipped the company’s second-quarter profits even though the railroad, insurance and manufacturing businesses performed well. This year, Berkshire recorded a US$120 million paper loss on its derivatives.
Berkshire’s investment gains and derivative losses combined to add US$713 million to this year’s second-quarter profit. A year ago, the company’s derivatives and investments were a US$1.1 billion drag on quarterly net income.
Stifel Nicolas analyst Meyer Shields said Berkshire’s insurance businesses, particularly Geico, performed a bit worse than he had expected, while everything else in Berkshire’s stable of companies performed a bit better than predicted.
“It seems to suggest that we’re not in a slam-dunk economy, but things seem to be Oklahoma-ish if we look over Warren Buffett’s shoulder,” he said.
However, Shields said the positive signs in Berkshire’s report probably won’t be enough to calm most investors shaken by recent market turmoil.
Berkshire reported the biggest improvement, apart from the investment gains in its railroad and manufacturing businesses.
The Burlington Northern Santa Fe railroad added US$690 million in net income, up from US$603 million a year ago. Berkshire said the railroad handled about 4 percent more carloads of cargo during the quarter and it generated about 17 percent more revenue as fuel surcharges and other price increases took effect.
Berkshire’s manufacturing, service and retailing businesses generated US$789 million net income in the quarter, up from US$671 million last year.
The biggest manufacturing improvement came from Berkshire’s Iscar Metalworking Co. It saw greater demand for its custom cutting tools, especially from automotive companies. However, Berkshire said sales were also higher for its Forest River recreational vehicles and the agricultural equipment made by CTB.
Berkshire’s insurance businesses recorded a US$7 million net underwriting loss in the quarter. A year ago, the insurance companies contributed US$462 million net income.
Berkshire executives say the company’s operating earnings are a better measure of how the company is performing in any given period because those figures exclude its derivatives and investment gains or losses.
Berkshire said its operating income declined 12 percent to US$2.7 billion in the second quarter, or about US$1.09 per Class B share. A year ago, Berkshire reported operating earnings of US$3.1 billion, or about US$1.24 per Class B share.