Berkshire Hathaway profit falls 37%

(MENAFN- Khaleej Times)Warren Buffett's Berkshire Hathaway said on Friday its second quarter profit fell 37 per cent reflecting a significant decline in investment gains and an underwriting loss from insurance operations which include Geico.

Net income for the insurance and investment company fell to $4.01 billion or $2442 per Class A share from $6.4 billion or $3889 per share a year earlier.

Operating profit dropped well below analysts' forecasts declining 10 per cent to $3.89 billion or $2367 per share from $4.33 billion or $2634 per share despite improvements at the BNSF railroad and Berkshire Hathaway Energy units.

Analysts on average expected operating profit of about $3038 per share according to Thomson Reuters I/B/E/S.

Revenue rose three per cent to $51.37 billion. Book value per share Buffett's preferred measure of growth rose two per cent from the end of March to $149735.

Net investment and derivative gains plummeted 94 per cent to $123 million from $2.06 billion a year earlier when Berkshire shed its 40-year stake in former Washington Post publisher Graham Holdings.

The most recent quarter included losses on contracts betting on long-term gains in major stock market indexes.

Accounting rules require Berkshire to report investment and derivative gains and losses with earnings. Buffett considers the amounts in any given quarter irrelevant and not reflective of Berkshire's business performance.

Earnings from insurance Berkshire's best-known operating sector fell 39 per cent to $939 million and included a $38 million underwriting loss versus a year-earlier $411 million profit.

Much of that weakness stemmed from the Geico car insurance unit. Its pretax underwriting gain fell 87 per cent to $53 million as it paid out more of the premiums it collected to cover losses from accidents. Berkshire is boosting premium rates as a result.

Meanwhile a Berkshire business that insures against major catastrophes suffered a $411 million pretax underwriting loss reflecting currency fluctuations and a storm loss in Australia.

Berkshire has been paring back in some insurance areas particularly reinsurance as new investors enter the industry reducing the premiums that Berkshire can charge.

"Everyone is chasing the business" said Jeff Matthews a principal at the hedge fund Ram Partners. "Outside of insurance" he added "things look fine."

Profit from BNSF rose five per cent to $963 million as improved operating performance offset lower demand to ship petroleum products reflecting lower crude oil prices and fertilizer.

Berkshire Hathaway Energy a utility mostly owned by Berkshire saw profit rise 34 per cent to $502 million helped by higher retail rates and a lower income tax rate.

Berkshire has more than 80 operating businesses in such sectors as insurance energy food industrial products and railroads.

As of June 30 it also owned $117.7 billion of stocks such as Wells Fargo & Co and Coca-Cola. It bought $3.09 billion of equities in the quarter without identifying the companies.

The company estimated it will take a $7 billion non-cash pretax gain in the third quarter related to its 26.9 per cent stake in Kraft Heinz.

Berkshire took that stake in early July after backing the purchase of Kraft Foods Group by H.J. Heinz which Berkshire and Brazilian private equity firm 3G Capital acquired in 2013.

The stake is worth about $25.5 billion more than double what Buffett has said was Berkshire's $9.5 billion investment.

Berkshire has the ability to make more big acquisitions having ended the quarter with $66.59 billion of cash.

The company also has dozens of smaller businesses that sell among other things Benjamin Moore paint Borsheim's jewellery Dairy Queen ice cream Fruit of the Loom underwear Johns Manville insulation and See's candies.

On Friday Berkshire Class A shares closed down $187.24 at $215462.76 and its Class B shares rose 20 cents to $143.55. The shares are about six per cent below their record highs set on December 8. - Reuters