Berkshire profit falls as underwriting
loss offsets railroad gains
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[August 05, 2017]
By Jonathan Stempel
(Reuters) - Warren Buffett's Berkshire
Hathaway Inc <BRKa.N> on Friday reported a 15 percent drop in
second-quarter profit, as lower investment gains and a loss from
insurance underwriting offset improvement in its BNSF railroad business.
Operating profit also fell short of analyst forecasts, though Berkshire
attributed much of the decline to currency fluctuations and its
accounting for a major contract with the insurer American International
Group Inc <AIG.N>.
Net income for Omaha, Nebraska-based Berkshire fell to $4.26 billion, or
$2,592 per Class A share, from $5 billion, or $3,042 per share, a year
earlier.
Operating profit declined 11 percent to $4.12 billion, or $2,505 per
Class A share, from $4.61 billion, or $2,803 per share.
Analysts on average expected operating profit of about $2,791 per share,
according to Thomson Reuters I/B/E/S.
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Buffett believes operating income is a better gauge of how Berkshire and
its more than 90 businesses are doing than net income, which fluctuates
more because it incorporates investment and derivative gains, which fell
64 percent from a year earlier.
Book value per share, Buffett's preferred measure of growth, rose 2.7
percent from the end of March to $182,816.
The company's stock price, meanwhile, set a record high on Friday, with
Class A shares closing up $1,629.80 at $270,000.
"They had a good quarter," said Bill Smead, chief executive of Smead
Capital Management Inc in Seattle, which owns Berkshire shares. "The
results reflect Berkshire's positioning in the U.S. economy."
RAILROAD
BNSF saw profit rise 24 percent to $958 million, helped by high
single-digit percentage increases in freight revenue from consumer and
industrial products, and double-digit increases from agricultural
products and coal.
Profit from manufacturing, service and retailing units rose 10 percent
to $1.66 billion, helped by greater demand for products from its IMC
International Metalworking unit.
Such gains helped offset a second straight quarterly loss from insurance
underwriting, totaling $22 million compared with a year earlier $337
million profit.
Berkshire said that weakness reflected losses from currency changes,
higher claims payouts at the Geico auto insurance unit, and the
amortization of deferred charges from its January agreement to take on
long-term AIG property and casualty risks in exchange for $10.2 billion
upfront.
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Berkshire Hathaway CEO Warren Buffett visits the BNSF booth before
the Berkshire Hathaway annual meeting in Omaha, Nebraska, U.S. May
6, 2017. REUTERS/Rick Wilking/File Photo
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That contract helped boost float, or the amount of insurance
premiums collected before claims are paid and which help fund
Berkshire's growth, to $107 billion from $91 billion at year end.
MORE CASH, MORE STOCKS
Berkshire ended June with about $99.7 billion of cash and
equivalents, plus large investments in shares of Kraft Heinz Co
<KHC.O>, Wells Fargo & Co <WFC.N>, Apple Inc <AAPL.O> and Coca-Cola
Co <KO.N>.
It bought just over $3 billion of stocks in the quarter, and is
poised to become Bank of America Corp's <BAC.N> biggest shareholder
by exercising stock warrants at below-market prices, for what would
now be a $12.5 billion paper profit.
Berkshire has found uses for some of its growing cash hoard.
Its Berkshire Hathaway Energy unit, whose quarterly profit rose 7
percent, hopes to spend $9 billion to buy the parent of Texas power
transmission company Oncor Electric Delivery Co out of bankruptcy.
And in June, Buffett threw a C$2 billion financing lifeline to Home
Capital Group Inc <HCG.TO>, Canada's largest nonbank lender, which
was struggling with a deposit exodus and had admitted to concealing
mortgage fraud.
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Thanks to Buffett, Home Capital said this week that issues over
whether it can survive have been resolved.
Berkshire's operating businesses also including smaller units that
sell such things as See's Candies, Dairy Queen ice cream and Brooks
running shoes.
(Reporting by Jonathan Stempel in New York; Editing by Jennifer
Ablan and Lisa Shumaker)
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