Nov. 6 (Bloomberg) -- Warren Buffett's Berkshire Hathaway Inc. had its smallest quarterly profit in more than two years after four U.S. hurricanes and a failed mining project cost the company $1.1 billion.

The losses cut net income at Omaha, Nebraska-based Berkshire 37 percent to $1.14 billion, or $739 a share, in the third quarter, the company said late yesterday. The profit was the lowest since the second quarter of 2002 and missed an estimate by Credit Suisse First Boston analyst Charles Gates.

As the largest U.S. reinsurer, Berkshire covers insurers' losses from catastrophes such as the hurricanes in August and September. Buffett also is earning less from investments as he increases Berkshire's cash while searching for acquisitions. Reinsurance policy sales are dropping as competitors cut prices.

``There are three of four factors working against him,'' said Matt Sauer, who helps manage $1.2 billion at Oak Value Capital Management, including about $215 million in Berkshire shares. ``They are things that ebb and flow and aren't permanent. The question is when he'll be able to drop $5 billion on his next big investment.''

The hurricanes cost Berkshire $816 million, while a shuttered zinc-mining program at the company's MidAmerican Energy Holdings Co. subsidiary resulted in a $255 million expense. The company's profit has declined in all three quarters this year.

Currency Gain

Buffett increased his bet against the U.S. dollar in the quarter by buying an additional $1 billion in foreign-currency contracts. The currency position gave Berkshire a $412 million pretax gain as the value of the dollar fell. The company had $20 billion of forward contracts in eight currencies on Sept. 30.

``That's a long-term position,'' Buffett said in an August interview about his bet. ``I have no idea what currencies are going to do next week or next month or even next year. I think I know over time.''

Berkshire generated 64 percent of its pretax profit last year from insurance subsidiaries, including General Re Corp., National Indemnity Co. and Geico Corp. The company's dozens of other businesses include carpet-maker Shaw Industries Inc. and Clayton Homes Inc., a manufactured-home builder and lender.

Buffett, 74, slowed reinsurance sales this year as market prices fell to levels that he considered unprofitable. Premium income at General Re, Berkshire's largest reinsurance unit, dropped 16 percent in the quarter to $1.72 billion. General Re's premiums will decline the rest of 2004, the company said.

Pretax profit at Geico, the fifth-largest U.S. auto insurer, increased 79 percent to $226 million as premiums jumped 13 percent to $2.26 billion.

Apparel, Carpets

Berkshire's apparel companies had higher profit, led by increases at Fruit of the Loom. Earnings fell 11 percent at Shaw Industries as higher oil prices raised the cost of petroleum- based raw materials.

Buffett is holding onto more cash because he sees few investment opportunities. Cash rose to $43 billion as of Sept. 30 from $40.2 billion three months earlier. Buffett has said he is willing to wait years for the right acquisition.

``I'm not going to do something dumb because two years has passed, or one year has passed, or three months,'' Buffett said in the interview. ``It would be crazy to have a time limit.''

Buffett and the company he has run for four decades haven't been affected so far by New York Attorney General Eliot Spitzer's investigation of insurance bid-rigging and alleged ``payoffs.'' As of Nov. 4, Berkshire hadn't received a subpoena from Spitzer, Chief Financial Officer Marc Hamburg said in an interview.

Berkshire is less susceptible to Spitzer's scrutiny because most of its policies are sold without the help of brokers who are at the center of the probe, said James Armstrong, president of Henry H. Armstrong Associates, which manages about $440 million and owns Berkshire shares.

Share Performance

The company's Class A shares fell $510 to $83,390 in New York Stock Exchange composite trading yesterday. They have declined 2.2 percent since Spitzer sued Marsh & McLennan Cos., the world's biggest insurance broker, on Oct 14. The S&P 500 Insurance Index has dropped 4.1 percent in the same period.

Almost all of Buffett's net worth comes from his $39.7 billion Berkshire stake. He is the world's second-richest man, after Microsoft Corp.'s Bill Gates, according to Forbes magazine.

Of four analysts that cover Berkshire, only Kevin Lampo of Edward Jones & Co. recommends investors buy the stock. Two analysts have a hold rating, while one recommends selling. Credit Suisse's Gates and Fox-Pitt Kelton's Gary Ransom provide the only quarterly earnings estimates.

Third-quarter profit excluding realized investment gains would have been $402 a share, less than Gates's estimate of $622. Net income in the year-earlier period was $1.8 billion, or $1,176 a share.

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

Last Updated: November 6, 2004 03:34 EST