Berkshire profit falls 24
percent, keeps Wells Fargo stake
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[November 05, 2016]
By Jonathan Stempel
(Reuters) -
Berkshire
Hathaway Inc on Friday said third-quarter profit dropped 24 percent from
a year earlier, when it recorded a large one-time gain, but acquisitions
helped boost operating profit at the conglomerate run by billionaire
Warren Buffett.
The company also reported a $22.1 billion stake in Wells Fargo & Co as
of Sept. 30, suggesting it kept its 10 percent ownership position even
as the bank became embroiled in a scandal over its creation of
unauthorized customer accounts.
Berkshire is Wells Fargo's largest shareholder.
Quarterly net income for Omaha, Nebraska-based Berkshire fell to $7.2
billion, or $4,379 per Class A share, from $9.43 billion, or $5,737 per
share, a year earlier.
Operating profit, which excludes investment and derivative gains and
losses, rose 7 percent to $4.85 billion, or $2,951 per share, from $4.55
billion, or $2,769 per share.
That missed the average $3,058.10 per share forecast of analysts polled
by Thomson Reuters I/B/E/S, in part reflecting weaker results at the
Geico auto insurer and BNSF railroad, and falling demand from customers
in industrial sectors.
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Results included a $1.6 billion gain when Mars Inc bought Berkshire's
preferred stock investment in its Wrigley chewing gum business. Last
year's results included a $4.4 billion gain related to the food company
Kraft Heinz Co.
Revenue was nearly unchanged at $59.1 billion. Book value per share,
Buffett's preferred measure of growth, rose 2 percent from the end of
June to $163,783.
Berkshire also ended September with $84.8 billion of cash, despite
having completed a $32.1 billion purchase of aircraft parts maker
Precision Castparts Corp in January that was a key factor behind the
boost in operating profit.
In a change, Buffett highlighted the cash hoard in Berkshire's press
release accompanying results.
"He has $85 billion of cash earning nothing," said Steven Check, who
invests $1.1 billion, of which 30 percent is in Berkshire, at Check
Capital Management Inc in Costa Mesa, California. "It gives Berkshire a
lot of pent-up firepower for more acquisitions."
WELLS FARGO
Since taking over Berkshire in 1965, Buffett has built a conglomerate
with roughly 90 businesses including Brooks running shoes, Dairy Queen
ice cream and Fruit of the Loom underwear.
Berkshire also owns dozens of companies' stocks, including Apple Inc,
Coca-Cola Co and International Business Machines Corp.
Though the value of the Wells Fargo investment fell from $23.7 billion
at the end of June, the decline can be explained by the more than 6
percent drop in the bank's share price.
That suggests that Berkshire has kept its roughly 500 million shares in
the third-largest U.S. bank.
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![](../images/110516pics/busine75.jpg)
Berkshire Hathaway shareholders walk by a video screen at the
company's annual meeting in Omaha May 4, 2013. REUTERS/Rick
Wilking/File Photo
![](../images/ads/current/demay_inv-lda081412.png)
Buffett has over the years repeatedly praised Wells Fargo, whose stock
Berkshire has owned since 1989, and this year asked the U.S. Federal
Reserve for permission to buy more.
But he also warned that companies guard against the kind of reputational
damage that Wells Fargo has suffered over the sham accounts, estimated
to number up to 2 million, which have prompted a variety of potentially
costly regulatory probes.
Buffett has said he would talk this month about the scandal, which
emerged on Sept. 8 when Wells Fargo agreed to pay $185 million in fines
to settle charges by U.S. regulators and a Los Angeles prosecutor.
BNSF STRUGGLES
Berkshire's operating businesses posted mixed results.
Overall insurance profit fell 11 percent to $1.12 billion, and included
a 34 percent drop from underwriting.
Geico saw pre-tax underwriting gains slide by 47 percent in the quarter,
as higher losses from storms and accidents offset increases in premium
rates.
But float, or the amount of insurance premiums collected before claims
are paid and which help fund Berkshire's growth, rose to $91 billion
from $90 billion at the end of June.
Profit from manufacturing, service and retailing companies rose 45
percent to $1.7 billion, as the addition of Precision helped offset
"sluggish demand" for industrial products from the oil and gas and heavy
equipment industries.
BNSF saw profit fall 12 percent to $1.02 billion, hurt by a decline in
coal and petroleum shipments that has dampened results this year and
which Berkshire expects to persist.
![](http://archives.lincolndailynews.com/2016/Nov/05/images/ads/current/lpd_basketball_lda_100416.png)
The Berkshire Hathaway Energy unit saw profit rise 19 percent to $932
million, helped by higher electricity margins at its MidAmerican Energy
unit.
In Friday trading, Berkshire Class A shares fell $456, or 0.2 percent,
to $214,545 and Class B shares fell 69 cents, or 0.5 percent, to
$142.95.
(Reporting by Jonathan Stempel in New York; editing by Bill Rigby, G
Crosse and Andrew Hay)
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