Berkshire Profit Doubles as Buffett Prepares for Meeting

May 4 (Bloomberg) -- Berkshire Hathaway Inc. said first-quarter profit doubled as insurance units posted better underwriting results and Chairman Warren Buffett’s derivative bets improved. Bloomberg's Su Keenan reports on Bloomberg Television's "Taking Stock." (Source: Bloomberg)

Berkshire Hathaway Inc. (BRK/A)’s first- quarter profit doubled as insurance units and derivative bets posted better results, the company said yesterday as it prepares for Chairman Warren Buffett’s annual meeting.

Net income climbed to $3.25 billion, or $1,966 a share, from $1.51 billion, or $917, a year earlier, when the company faced claims from an earthquake and tsunami in Japan, Berkshire said yesterday a statement.

Buffett will take questions from analysts, journalists and investors today at the meeting, a forum he uses to opine on the economy and capital deployment. The funds available to Buffett increased in the first quarter as his insurance units were spared losses on natural disasters.

There weren’t “any catastrophe losses that were of note, outside of some tornado activity” in the first quarter, Tom Lewandowski, an analyst with Edward Jones & Co. in St. Louis, said in a phone interview before results were announced. Worldwide, claims from natural disasters were “nothing like we had last year with Japan,” he said.

Book value, a measure of assets minus liabilities, rose in the quarter to $176 billion from $164.9 billion at the end of 2011. Omaha, Nebraska-based Berkshire’s Class A shares have risen 6.3 percent this year, trailing the 8.9 percent gain in the S&P 500.

The value of the equity portfolio climbed to $89.1 billion from $77 billion on Dec. 31 as American Express Co., Wells Fargo & Co., International Business Machines Corp. and Munich Re rallied. Berkshire spent $3.4 billion on equities and sold $820 million in the quarter, the company said in a regulatory filing yesterday. The company bought fixed-maturity securities for $2.1 billion and sold $1.1 billion of the assets.

Farm Products

Buffett, 81, also encourages deals by some subordinates, including Victor Mancinelli, the chief executive officer of CTB Inc. The farm-products subsidiary yesterday announced an agreement to buy Meyn Holding BV of the Netherlands to expand into slaughtering and packaging equipment for chickens.

Among Buffett’s largest bets since last year’s meeting in Omaha were the purchase of the IBM stake for more than $10 billion and a $5 billion investment in Bank of America Corp. Buffett pays for many of his deals with funds held by insurance units such as Geico and National Indemnity.

The insurance segment posted an underwriting profit of $54 million compared with a loss of $821 million a year earlier, Berkshire said. The company had “no significant losses” from catastrophes in the three months ended March 31, compared with $1.1 billion after tax a year earlier, according to the filing.

Derivative Bets

The gain from equity-index puts rose to $689 million in the three months ended March 31 from $223 million a year earlier. Gains from credit-default contracts, in which Buffett bets on the ability of borrowers to repay debt, increased to $340 million from $70 million.

Buffett, also Berkshire’s CEO and largest shareholder, sold equity derivatives to undisclosed buyers for $4.9 billion in 2006 and 2007, when markets were near their peaks. Liabilities on the bullish bets narrow when four equity benchmarks rise. The S&P 500 climbed 12 percent in the three months ended March 31 while another benchmark covered by the contracts, the Nikkei 225 Stock Average, surged 19 percent.

First-quarter results include a $337 million impairment related to bonds of Texas Competitive Electric Holdings, a unit of Energy Future Holdings Corp. Berkshire wrote down holdings tied to Energy Future by $390 million last year and $1 billion in 2010 and may record further losses, Buffett said in February.

Succession Planning

Buffett, who hired former hedge-fund managers Todd Combs and Ted Weschler in the last two years to help oversee investments, is under pressure to demonstrate Berkshire is prepared for a transition in leadership. Buffett told investors in his annual letter in February that the company’s board had picked his eventual successor as CEO.

Buffett didn’t identify who it was or a timeline for the switch. He also said there are “two superb back-up candidates.”

The CEO said April 17 that he has stage 1 prostate cancer that is “not remotely life-threatening or even debilitating in any meaningful way.” Buffett plans to begin a two-month treatment of daily radiation in July. The regimen will restrict his travel during the period and not otherwise change his daily routine, said Buffett.

Berkshire said yesterday that Burlington Northern Santa Fe contributed $701 million to earnings, compared with $607 million a year earlier, as shipments of consumer goods and industrial products rose. The railroad said in a separate filing that it will pay a $750 million distribution to its parent this month.

Berkshire paid $26.5 billion in 2010 for the 77.5 percent of the railroad it didn’t already own. Buffett is “on the prowl” for large acquisitions after record earnings at Berkshire’s railroad and energy units helped boost the company’s cash hoard to $37.3 billion at the end of 2011, the billionaire investor said in the letter. The cash pile climbed to $37.8 billion as of March 31.

To contact the reporters on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net; Andrew Frye in New York at afrye@bloomberg.net.

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

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