Warren Buffett’s Berkshire Hathaway Inc posted a 29 percent jump in third-quarter profit as it recorded big gains on investments made during the financial crisis, but operating results missed forecasts amid weakness in insurance operations.
Quarterly results included US$1.4 billion of gains from investments that Buffett made in October 2008, including in General Electric Co and Goldman Sachs Group Inc warrants, and bonds related to candy maker Mars Inc’s purchase of rival Wrigley.
Such investments helped give Buffett a reputation as a lender of last resort.
However, investment and derivative gains do not factor into operating results, and while profit rose at Berkshire’s Burlington Northern Santa Fe railroad and MidAmerican energy and utility units, insurance underwriting results deteriorated.
Net income rose to US$5.05 billion, or US$3,074 per Class A share, from US$3.92 billion, or US$2,373 per share, a year earlier, Berkshire said on Friday.
Operating profit rose just 8 percent to US$3.66 billion, or US$2,228 per Class A share, from US$3.4 billion, or US$2,057 per share. Analysts on average expected US$2,402 per share, according to Thomson Reuters I/B/E/S.
Michael Yoshikami, president of Destination Wealth Management in Walnut Creek, California, which invests US$1.3 billion and owns Berkshire stock, said the company can boost investment results if bond yields rise once the US Federal Reserve pulls back on efforts to prop up the nation’s economy.
“The US economy is rather stumbling, and that is positive actually for their infrastructure investments such as railroads,” he said. “All things considered, we are fairly pleased with the results.”
Net insurance underwriting premiums fell 57 percent to US$170 million. Results weakened at the Geico auto insurance unit, which paid out a higher percentage of premiums to cover claims than a year earlier, and the General Re reinsurance unit, which had a US$400 million underwriting loss from a European hailstorm.
In addition, Berkshire’s main reinsurance business sustained a US$206 million pre-tax underwriting loss hurt by lower premiums and currency fluctuations.
Profit rose about 6 percent at Burlington Northern to US$989 million as higher shipments of industrial products, consumer products and coal offset a drop for agricultural products amid lower grain exports and strong global competition.
Results also improved in businesses such as the Forest River recreational vehicle unit. Revenue from jewelry, home furnishings and other retail businesses rose 18 percent.
Bill Smead, chief executive of Smead Capital Management in Seattle, which invests 3 percent of its US$700 million of assets in Berkshire, said the 83-year-old Buffett is setting up the company to perform over the long haul.
“He’s making a big push into almost everything associated with the idea that we’ll build a lot more homes in the next 10 years,” Smead said.
Berkshire ended the quarter with US$42.08 billion of cash and equivalents, giving Buffett the firepower to make large acquisitions, which he calls “elephants.”