Net income rose to $4.54 billion, or $2,763 a share, from $3.11 billion, or $1,882, a year earlier, on gains in Buffett’s derivative bets, the Omaha, Nebraska-based company said yesterday in a filing. Operating earnings, which exclude some investment results, were $2,384 a share, exceeding the $2,166 average estimate of three analysts surveyed by Bloomberg.
Berkshire has benefited this year as the U.S. economy rebounded and stocks rallied, boosting the value of Buffett’s investments. The company’s operating units, including railroad Burlington Northern Santa Fe, auto insurer Geico and utility MidAmerican Energy Holdings Co., do most of their business in the country.
“As America goes, so goes Berkshire,” Meyer Shields, an analyst at Keefe, Bruyette & Woods, said in a phone interview before results were announced.
Class A shares rose 0.5 percent to $176,500 yesterday in New York prior to the release, extending their advance to 32 percent this year. That compares with the 20 percent rise in the Standard & Poor’s 500 Index.
Net income from BNSF climbed 10 percent to $884 million. Revenue gained about 5 percent to $5.32 billion, on increases tied to industrial and consumer products and coal. The railroad expects capital commitments this year will be $4.3 billion, or $200 million more than previously disclosed, BNSF said in a separate filing.
Spending on plant and equipment, acquisitions and equities, are helping Berkshire deploy its cash pile. Buffett’s firm spent $4.64 billion on stocks in the quarter, while selling $781 million, according to the filing. Most of the increase was in the category that Berkshire labels as “commercial, industrial and other.”
Berkshire’s stock portfolio was valued at $103.3 billion on June 30, up from $97.2 billion at the end of March. Book value, a measure of assets minus liabilities, rose to about $122,900 a share on June 30 from $120,525 on March 31. The cash pile fell 27 percent in three months to $35.7 billion as Berkshire invested more than $12 billion in a deal with Jorge Paulo Lemann’s 3G Capital to take HJ Heinz Co. private.
Buffett’s company has an $8 billion preferred stake in the ketchup maker and half the common stock, or 425 million shares. Berkshire also has warrants to buy 46 million additional Heinz shares for 1 cent each, yesterday’s filing showed.
MidAmerican added $279 million to Berkshire’s profit compared with $253 million in last year’s second quarter on higher earnings at utility PacifiCorp and real-estate broker HomeServices of America.
Buffett’s derivative bets on stock market gains boosted earnings by $390 million in the second quarter, compared with a loss of $1.17 billion a year earlier. Fluctuations in the value of the contracts are recorded in net income each quarter, even though the wagers won’t be settled until 2018 or later.
The insurance segment’s underwriting profit slipped 14 percent from last year’s second quarter to $530 million as flooding in Europe boosted General Re’s claims. Geico’s underwriting profit was $336 million before tax. Insurance investment income rose about 7 percent to $1.14 billion.
In the past 15 years, Buffett, 82, shifted toward more capital-intensive industries, purchasing MidAmerican, the railroad and manufacturing companies. Those bets have tethered its results more to the U.S. economy and the housing market. Buffett is Berkshire’s chairman, CEO and largest shareholder.
Among the company’s units are paintmaker Benjamin Moore; Clayton Homes, a builder of manufactured housing; and HomeServices. Buffett’s firm is also the largest shareholder in Wells Fargo & Co. (WFC), the biggest U.S. mortgage lender.
Gains in housing have helped propel a rebound in the U.S. economy. Gross domestic product rose at a 1.7 percent annualized rate in the second quarter, after a 1.1 percent gain in the first three months of the year, Commerce Department figures showed this week.
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