Warren Buffett’s company said on Friday its third-quarter profit soared 72 percent because the value of its investments and derivative contracts improved significantly.
However, Buffett has said he believes Berkshire’s operating earnings, which exclude the value of its derivatives and investments, are a better measure of the company’s performance.
Berkshire’s operating earnings declined 11 percent in the quarter, weighed by a drop in insurance underwriting profits.
Berkshire Hathaway Inc reported net income of US$3.92 billion, or US$1.58 per Class B share, up from US$2.28 billion, or US$0.92 per share, last year.
Its revenue grew to US$41.05 billion from last year’s US$33.74 billion.
The three analysts surveyed by FactSet expected Berkshire to report earnings of US$1.38 per Class B share on US$39.04 billion revenue.
The biggest difference in the quarter was a major swing in the paper value of Berkshire’s derivatives tied to equity markets. Berkshire’s investment gains and derivative losses combined to add US$521 million to net income this year.
Last year, those things drained US$1.53 billion from its third-quarter profit.
Buffett says Berkshire’s investment and derivative gains or losses can be misleading because the company rarely sells its investments, and the derivatives do not mature until about eight years from now.
Berkshire executives do not typically comment on quarterly earnings reports, and they did not immediately respond to an interview request late on Friday.
Besides the big swing in the paper value of Berkshire’s investment and derivatives, several of the Omaha-based company’s other subsidiaries performed well.
Berkshire’s BNSF Railway contributed US$937 million to the company’s third-quarter profit as it increased prices about 2 percent and hauled 5 percent more carloads of freight, up from US$766 million last year as BNSF limited expense growth to less than 3 percent.
Another boost was the addition of specialty chemical maker Lubrizol, which Berkshire acquired last September. That acquisition, combined with a modest improvement in the US housing construction, helped Berkshire’s manufacturing, service and retail unit generate US$991 million in net income, up from US$836 million last year.
Berkshire’s utilities, which include Iowa-based MidAmerican Energy, added US$438 million to the company’s quarterly profit, up from US$372 million last year.
However, Berkshire’s insurance unit, which includes Geico and several large reinsurance companies, were a drag on third quarter profit because last-year’s results were helped by a one-time US$855 million adjustment in the liabilities of several reinsurance contracts.
Because of that, Berkshire reported an insurance underwriting profit of US$392 million this year, down from US$1.09 billion last year.