OMAHA, Neb. (AP) - Berkshire Hathaway Inc. said Friday its first-quarter
profit fell 64 percent because it recorded an unrealized $1.6 billion pretax
loss on its derivative contracts, and its insurance businesses generated lower
profits.
Berkshire reported net income of $940 million, or $607 per share, in the
quarter ended March 31. That's down significantly from the net income of $2.6
billion Berkshire generated a year ago.
Berkshire's chairman and CEO Warren Buffett warned shareholders in his
annual letter that the derivatives could make the company's earnings volatile.
But he predicted the derivatives will ultimately be profitable.
The four analysts surveyed by Thomson Financial expected earnings per share
of $1,476.99 on average.
Including the derivative losses, Berkshire's net investment losses in the
quarter totaled $991 million. A year ago, the Omaha-based company recorded a
$382 million investment gain.
Berkshire's derivatives fit into two major categories. Berkshire will have
to pay on some of the contracts if certain U.S. entities default on their
credit. Most of the other derivatives will only be paid if the certain stock
indices are lower in 15 or 20 years than they were when the contract was
written.
Berkshire has received $2.9 billion in premiums on the credit-default
derivatives and $4.9 billion on the stock index derivatives.
Berkshire said its operating earnings are a better measure of how the
company is performing in any given period because those figures exclude
derivatives and investment gains or losses. Berkshire reported $1.93 billion in
operating earnings during the first quarter, which was down from $2.21 billion
in operating earnings a year earlier.
Officials at Berkshire typically do not comment on quarterly earnings
reports. The first-quarter report was released on the eve of Berkshire's annual
shareholders meeting, which is expected to attract more than 30,000 people
Saturday.
Berkshire's insurance group, which includes Geico, reinsurance giant General
Re and several other firms, contributed $181 million to net income from
underwriting new policies. A year ago, Berkshire's insurance companies generated
a $601 million underwriting profit.
Buffett has said he expects insurance profits to fall during 2008 because
increased competition has driven premium prices down, and a catastrophic loss
could further hurt insurance profits.
"Berkshire's property and casualty reinsurance operations have benefited
during the past two years from relatively low levels of catastrophic losses,
which investors should not assume will recur in 2008," Berkshire's CFO Marc
Hamburg wrote in the quarterly report.
Berkshire generated $25.2 billion in revenue during the first quarter, down
from the $32.9 billion it generated in 2007's first quarter.
Berkshire had $35.6 billion cash on hand at the end of the quarter, which is
down from the $44.3 billion the company held at the end of 2007.
The company used some of its cash to complete its $4.5 billion purchase of a
60 percent stake in industrial conglomerate Marmon Holdings Inc. That deal
closed March 18.
Marmon includes more than 125 manufacturing and service businesses across
the transportation, energy and construction markets. Marmon makes products
ranging from railroad tank cars to metal fasteners.
Berkshire owns more than 60 subsidiaries that range from insurance to
clothing, furniture, and candy companies, restaurants, natural gas and corporate
jet firms. Berkshire also has major investments in such companies as Coca-Cola
Co., Anheuser-Busch Cos. and Wells Fargo & Co.
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