By Erik Holm
Warren Buffett's Berkshire Hathaway Inc. (BRKA, BRKB) said
second-quarter profit fell 9% to $3.11 billion amid declining
results in its derivative portfolio and a failure to repeat a big
investment gain it chalked up a year ago.
But operating earnings, Buffett's preferred metric for
evaluating his company, jumped 38% to $3.72 billion, or $2,252 per
Class A Share, the company said in a statement Friday. Analysts
surveyed by Thomson Reuters had expected operating profit of about
$1,777 a share.
Berkshire's insurance operations provided much of the boost in
the operating results. The company's insurance operations, which
include car insurer Geico Corp., posted an underwriting profit of
$619 million, compared to a loss of $7 million in the same period a
year earlier, when natural disasters devastated the insurance
industry's profits.
Buffett has said he likes the insurance business because he can
invest the policyholder premiums until the money is needed to pay
claims. Berkshire's insurance units earned $1.07 billion in
investment income in the latest period, a 7.3% increase from last
year's second quarter.
The noninsurance businesses also contributed to the improved
operating result. Operating profit at those units rose 22% to $2.2
billion.
Buffett, one of the world's richest people, has built Berkshire
over four decades into a massive conglomerate with more than 70
distinct units, including Dairy Queen, Fruit of the Loom and a
chain of newspapers. Berkshire owns a railroad and a trucking
company, operates power plants and gas pipelines, sells farm
supplies and furniture, and manufactures machine parts and mobile
homes.
The derivative book, which includes massive puts whose value
rises and falls with major indexes, had a $693 million loss, five
time larger than a year earlier. But Mr. Buffett, as always, warned
that the figure is "often meaningless," since any losses won't have
to be paid for several years, if at all.
A year ago, Berkshire booked $833 million for an investment gain
when Goldman Sachs Group Inc. (GS) redeemed Berkshire's crisis-era
investment in the investment bank. This time, Berkshire's
investment gains were a scant $81 million. Neither the derivative
losses nor the investment gains are included in operating
income.
Berkshire had $40.7 billion in cash as of June 30, compared with
$37.8 billion three months earlier.
Berkshire, which announced an unprecedented share buyback
program last September, didn't repurchase any shares during the
second quarter. Its shares have risen 12% in the year to date,
versus a 10.6% gain in the Standard & Poor's 500 stock
index.
Berkshire's Class A closed at $128,479 in regular trading
Friday, their highest point since March 2011. The stock's post-2008
high is $131,300, reached in February 2011.
--Serena Ng contributed to this article.
Write to Erik Holm at erik.holm@dowjones.com
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