Berkshire Hathaway Inc reported a 3.8 percent decline in first-quarter profit as underwriting results declined at insurance businesses and on reduced earnings from chairman Warren Buffett’s derivatives wagers.
Net income slipped to US$4.71 billion, or US$2,862 a share, from US$4.89 billion, or US$2,977 a share a year earlier, the Omaha, Nebraska-based company said on Friday. The decrease in profit was the first since 2012.
Buffett, who was due to welcome shareholders to Berkshire’s annual meeting yesterday, has been expanding in businesses like energy and railroads that provide opportunities for billions of dollars in capital spending and relatively stable returns tied to the US economy.
“When you get a substantial portion of your earnings from insurance, you live with the fact that the numbers bump around,” Bill Smead, chief investment officer at Smead Capital Management, which oversees about US$950 million including Berkshire shares, said in an interview.
Underwriting profit declined 49 percent to US$461 million at the insurance segment on smaller gains from the reinsurance group. The group benefited last year from a gain on a contract with Swiss Re Ltd.
Float from insurance units, including car insurer Geico, has provided Buffett with funds to amass the largest equity stakes in companies including Coca-Cola Co, Wells Fargo & Co and American Express Co. Float, which counts money held to back obligations to policyholders, was US$78 billion as of March 31, up from about US$77 billion at the end of last year.
Berkshire’s stock portfolio was valued at US$118.5 billion on March 31, up about US$1 billion from the end of last year. Berkshire spent US$1.2 billion on equities and US$2 billion on fixed-maturity securities in the quarter.
The allocation to foreign-government debt climbed to US$12.2 billion from US$11 billion in December. The UK, Germany, Canada, Australia and the Netherlands represented 75 percent of that portfolio as of March 31, down from 78 percent on Dec. 31.
Berkshire posted a US$132 million pre-tax loss from equity index puts in the three months ended March 31, compared with a US$1.25 billion gain a year earlier, the company said in a regulatory filing. Buffett, the chairman and chief executive officer, uses the contracts to wager on gains in stock markets.
Credit-default contracts, in which Buffett bets on the ability of borrowers to repay debt, contributed US$373 million, compared with a loss of US$14 million a year earlier.
Book value, a measure of assets minus liabilities, rose in the quarter to US$138,426 a share from US$134,973 at the end of last year. The cash pile grew to US$48.9 billion from US$48.2 billion on Dec. 31. Class A shares rose 8.1 percent this year in New York, beating the 1.8 percent gain in the Standard & Poor’s 500 Index.
Stimulus from the US Federal Reserve, a pickup in consumer spending and a recovering housing market have bolstered the US economy. Berkshire stands to gain from those trends because its subsidiaries include a railroad, a home builder, a trucking company, electric utilities, manufacturers and retailers.
The Burlington Northern Santa Fe railroad, which was Buffett’s biggest takeover, contributed US$724 million to quarterly earnings, down from US$798 million a year earlier, as winter weather and rising cargo shipments disrupted operations.
Berkshire’s operating earnings, which exclude some investment results, were US$2,149 a share, missing the US$2,171 average estimate of three analysts surveyed by Bloomberg.
The utility unit added US$452 million to Berkshire’s earnings, compared with US$394 million a year earlier. The business benefited from demand driven by cold weather, according to the filing.
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