Aug. 7 (Bloomberg) -- Billionaire Warren Buffett's bet against the U.S. dollar and his preference for cash over other investments caused Berkshire Hathaway Inc. to post its smallest quarterly earnings since 2002.

Net income at Omaha, Nebraska-based Berkshire, run by Buffett since 1965, fell 42 percent in the second quarter to $1.28 billion, or $834 a share, from $2.23 billion, or $1,452, a year earlier, the company said yesterday.

The drop was caused by $172 million of realized investment and currency losses, compared with a $905 million gain a year earlier, when Berkshire sold most of its U.S. Treasuries. Buffett, 73, is accumulating cash to make acquisitions, a strategy that also cut interest and dividend income 16 percent in the quarter.

``You've got an avalanche of cash,'' Donald Yacktman, who manages $1 billion at Yacktman Asset Management, said in an interview last week. His company held more than $17 million worth of Berkshire stock as of June. ``The most important thing is for him to have the opportunity for acquisitions.''

Berkshire's profit excluding realized investment losses rose 9.8 percent to $1.45 billion, or $946 a share. That exceeded the $812-a-share estimate by Fox-Pitt Kelton Inc. analyst Gary Ransom and the $877 expected by Credit Suisse First Boston's Charles Gates. They're the only analysts with estimates listed by Thomson Financial.

Revenue at the company rose 25 percent to $18 billion because of the acquisition of food distributor McLane Co. Investment income fell to $479 million from $571 million as cash holdings increased.

Cash

Berkshire had a pretax loss of $445 million from Buffett's bet that the U.S. trade deficit will weaken the dollar. Berkshire held $18 billion of foreign currency contracts as of March 31. It didn't reveal its currency position as of June.

Berkshire's cash was $40.2 billion at the end of June, compared with $40.9 billion in March and $28.4 billion in June 2003.

Berkshire said yesterday that its insurance businesses benefited from a lack of major catastrophes in the quarter.

Underwriting profit at the insurance units jumped 60 percent to $422 million, led by Geico Corp., the fifth-largest U.S. auto insurer. Geico's premium revenue rose 15 percent to $2.18 billion and it's underwriting profit more than tripled to $229 million.

Geico said it expects policy growth to slow as competitors cut prices. The insurer's prices rose less than 2 percent from a year earlier.

Reinsurance

Berkshire Hathaway Reinsurance Group, one of the company's two reinsurance units, increased underwriting profit 42 percent to $373 million, mainly because of a $150 million reduction in liabilities from ending several contracts.

Profit at General Re Corp., Berkshire's other reinsurance business, fell 26 percent to $39 million. Premium revenue rose 4.8 percent to $2.06 billion. Berkshire said premium sales and revenue will probably decline for the remainder of 2004 from last year's levels because of price competition.

``They're trying to tighten their standards and properly price the business that they write,'' James Armstrong, president of Henry H. Armstrong Associates, said yesterday. His company manages $440 million, including $80 million in Berkshire shares. ``I would expect Gen Re's premium volume to shrink as they walk away from business that someone else would outbid them on.''

Carpets and Jets

Profit at non-insurance businesses including carpet-maker Shaw Industries Inc. and corporate-jet provider NetJets Inc. increased 13 percent to $579 million. Berkshire has more than 40 subsidiaries.

Buffett has never sold a share of the Berkshire stock that has made him, according to Forbes magazine, the world's second- richest man. By purchasing undervalued assets, Buffett has increased Berkshire's share price 4,739-fold since 1965.

Berkshire A shares rose $250 to $85,800 in New York Stock Exchange composite trading yesterday. The company announced earnings after regular trading hours. The shares have gained 19 percent in the past year, more than the 10 percent rise in the Standard & Poor's 500 Index.

The quarterly net income was Berkshire's lowest since the fourth quarter of 2002, when it earned $1.18 billion.

To contact the reporter on this story: David Plumb in New York at dplumb@bloomberg.net.

Last Updated: August 7, 2004 00:00 EDT