Warren Buffett’s Berkshire Hathaway Inc said fourth-quarter profit surged, helped by derivatives bets tied to global stock markets, though operating profit fell 40 percent as the weakened US economy weighed on several businesses.
Profit rose for a third straight quarter and full-year profit increased 61 percent as Berkshire rebounded from perhaps its worst year since Buffett took over in 1965.
In his annual letter to Berkshire shareholders, Buffett admitted that Berkshire’s ability to outperform that benchmark “has shrunk dramatically” and that “our future advantage, if any, will be a small fraction of our historical edge.”
Net worth per share, which measures assets minus liabilities and is a key metric for Buffett, rose 19.8 percent, compared with a 9.6 percent drop a year earlier.
Still, that lagged a 26.5 percent gain including dividends for the Standard & Poor’s 500, the first time it trailed since 2004. Berkshire’s net worth per share is up 20.3 percent annually since 1965, while the S&P 500 is up 9.3 percent. Total book value rose to US$131.1 billion from US$109.27 billion.
Buffett, who in last year’s letter said the economy would be in “shambles” for the year, this year struck a more optimistic note.
He said “residential housing problems should largely be behind us” within about a year as supply falls into line with demand, though “prices will remain far below ‘bubble’ levels.”
He also used the letter to lambaste financial industry chief executive officers and directors for bad risk management, suggesting that shareholders have borne too much of the burden of recent massive government bailouts.
“A board of directors of a huge financial institution is derelict if it does not insist that its CEO bear full responsibility for risk control,” he said. “If he fails at it — with the government thereupon required to step in with funds or guarantees — the financial consequences for him and his board should be severe.”
Fourth-quarter net income for Omaha, Nebraska-based Berkshire rose to US$3.06 billion, or US$1,969 per Class A share, from US$117 million, or US$76, a year earlier. Revenue rose 23 percent to US$30.2 billion.
Excluding US$1.03 billion of investment and derivative gains, operating profit to US$2.03 billion, or about US$1,308 per share, from US$3.37 billion, or US$2,175.
For all of last year, profit rose to US$8.06 billion, or US$5,193 per Class A share, from US$4.99 billion, or US$3,224. Revenue rose 4 percent to US$112.49 billion.
Berkshire has about 80 businesses that sell such things as Geico car insurance, Dairy Queen ice cream and Fruit of the Loom underwear.
Two weeks ago it paid US$26.5 billion for Burlington Northern Santa Fe Corp, the US’ second-largest railroad, in Buffett’s largest takeover.
That and a related stock split won Berkshire admission to the S&P 500. In its annual report, Berkshire said operating results for its main business lines, insurance and utilities, “have not been negatively impacted in any significant way by the recession.”
In contrast, earnings fell at most manufacturing, service and retailing units last year, as the recession led to “lower sales volume, revenues and profit margins as consumers have significantly curtailed spending, particularly for discretionary items.”
Quarterly results included US$1.05 billion of pretax gains on derivative contracts, mainly tied to the longer-term performance of stock market indexes. Buffett said Berkshire changed “only a few” derivative positions in the last year, and he still believes they will make money.
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