By Erik Holm
Warren Buffett's Berkshire Hathaway Inc. (BRKA, BRKB) Friday
said first-quarter profit jumped 51% on improvements at a key
insurance operation and rising profits at its railroad.
Net income of $4.89 billion, or $2,977 per Class A share,
compared with a profit of $3.25 billion, or $1,966 a share, in the
same period a year earlier. First-quarter operating profit of
$2,302 per share beat Wall Street's expectation of $1.995.50.
Operating profit excludes some investment results.
The jump in profit came one day before Mr. Buffett will welcome
tens of thousands of people to his hometown of Omaha, Neb., to
attend the company's annual shareholder's meeting. The gathering,
jokingly dubbed "Woodstock for Capitalists" by Mr. Buffett's
admirers, comes as Berkshire shares have set new all-time highs in
recent weeks. The stock closed at $162,904 on Friday, a new record,
and has jumped more than 20% this year.
Mr. Buffett has assembled Berkshire over five decades into a
gigantic conglomerate that owns a railroad, operates power plants,
leases corporate jets and sells a wide range of consumer products.
But a key facet of the business remains Berkshire's insurance
operation, which includes car insurer Geico Corp., reinsurer
General Re and several other massive insurance companies.
Berkshire's insurance operations reported a $901 million
underwriting profit, a drastic improvement over the $54 million
profit it recorded a year earlier. One of the company's key
reinsurance units benefited from currency fluctuations and the
amendment of a life-insurance transaction with Swiss Re AG
(SREN.VX).
Mr. Buffett has long appreciated the insurance business because
he can invest customer premiums until funds are needed to pay
claims--sometimes using the money for years before the claims come
due. Mr. Buffett calls these funds "float," and he reported Friday
that the pool of funds was about $73 billion, unchanged from the
end of 2012.
With interest rates near all-time lows, insurers have struggled
to find lucrative places to invest new money. Despite Mr. Buffett's
investing savvy, Berkshire hasn't been immune, but in the latest
quarter, investment income from the insurance operations rose 1% to
$799 million when compared to the same period a year earlier.
The company's non-insurance units saw operating profit rise 12%
to $2.25 billion, driven by a healthy increase at railroad
Burlington Northern Santa Fe. The railroad handled more carloads
and collected more per car than a year ago.
A portion of the quarter's increase in net income came from a
corner of the company that Mr. Buffett has advised shareholders to
ignore: Berkshire's derivatives portfolio.
The largest portion of the portfolio is a series of equity-index
puts, with a notional value of $31.8 billion, that are tied to the
performance of stock indexes in Europe, Asia and the U.S.
Three of the indexes rose in the first quarter, and unrealized
gains on the so-called equity-index puts were $1.25 billion. In the
first quarter of 2012, those gains were $689 million.
But gains and losses there are an accounting matter until the
contracts expire beginning in 2018.
Berkshire's cash hoard was $49.1 billion at the end of the first
quarter, up from $47 billion at Dec. 31.
Write to Erik Holm at erik.holm@dowjones.com
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