Omaha, Nebraska - Warren Buffett’s Berkshire Hathaway posted a 29 percent jump in third-quarter profit on Friday as it recorded big gains on investments made during the financial crisis, but operating results missed forecasts amid weak insurance returns.
Quarterly results included $1.4 billion (R14bn) of gains from investments that Buffett made in October 2008, including in General Electric and Goldman Sachs warrants, and bonds related to chocolate maker Mars’s purchase of rival Wrigley.
Such investments helped give Buffett a reputation as a lender of last resort.
But 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 $5.05bn, from $3.92bn a year earlier, Berkshire said on Friday.
Operating profit rose just 8 percent to $3.66bn.
Michael Yoshikami, the president of Destination Wealth Management, which owns Berkshire stock, said the company could boost investment results if bond yields rose once the US Federal Reserve pulled 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.”
Book value has risen 11 percent this year to $126 766 per Class A share by September 30.
Net insurance underwriting premiums fell 57 percent to $170 million. Results weakened at the Geico vehicle 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 $400m underwriting loss from a European hailstorm.
In addition, Berkshire’s main reinsurance business sustained a $206m pre-tax underwriting loss, hurt by lower premiums and currency fluctuations.
Profit rose about 6 percent at Burlington Northern to $989m, as higher shipments of industrial products, consumer products and coal offset a drop for agricultural products.
Results also improved in businesses such as the Forest River recreational vehicle unit. Revenue from jewellery, home furnishings and other retail businesses rose 18 percent.
Bill Smead, the chief executive of Smead Capital Management in Seattle, which invests 3 percent of its $700m of assets in Berkshire, said Buffett was 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 $42.08bn of cash and equivalents, giving Buffett the firepower to make one or more large acquisitions”. – Reuters