Berkshire Profit Jumps 41% to Record on Buffett’s Bets

Aug. 4 (Bloomberg) -- Bloomberg’s Noah Buhayar reports on the $50 billion in cash available at the Omaha, Nebraska-based Berkshire Hathaway Inc. Bank of America Merrill Lynch Portfolio Strategy CIO Mary Ann Bartels and Davidowitz & Associates Chairman and Founder Howard Davidowitz also speak on “Bloomberg Surveillance.” (Source: Bloomberg)

Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) posted second-quarter profit that beat analysts’ estimates as results improved at operating businesses including auto insurer Geico, railroad BNSF and the energy unit.

Net income surged 41 percent to a record $6.4 billion on gains from an asset swap with the former Washington Post publisher, Buffett’s Omaha, Nebraska-based company said yesterday in a statement. Operating earnings, which exclude some investment results, were $2,634 a share, compared with the $2,482 estimate of three analysts surveyed by Bloomberg.

A rebounding U.S. economy has boosted the value of Berkshire’s stock portfolio and helped propel growth at the dozens of companies that Buffett, 83, acquired during his four-decade tenure as chairman and chief executive officer.

“You basically are seeing the impact of a lot of economically sensitive businesses responding to an improving economy,” Cathy Seifert, an analyst at Standard & Poor’s Capital IQ, said in a phone interview. “There are a lot of moving parts here, and this quarter they all moved in the right direction.”

BNSF contributed $916 million to quarterly earnings, compared with $884 million a year earlier as revenue climbed from hauling industrial and agricultural products. The company said service levels were “well below our internal standards, as well as those expected by our customers” as the railroad works to untangle train tie-ups that were caused by surging volumes and harsh weather.

Photographer: Scott Eells/Bloomberg

Most of the businesses Warren Buffett, chairman and chief executive officer of Berkshire Hathaway Inc., has bought over the years are based in the U.S. and the largest equity holdings -- like Wells Fargo & Co. and Coca-Cola Co. -- are American. Close

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Photographer: Scott Eells/Bloomberg

Most of the businesses Warren Buffett, chairman and chief executive officer of Berkshire Hathaway Inc., has bought over the years are based in the U.S. and the largest equity holdings -- like Wells Fargo & Co. and Coca-Cola Co. -- are American.

Energy Unit

The utility business, renamed Berkshire Hathaway Energy Co. in April, added $375 million to earnings compared with $279 million a year earlier. The increase was driven by the addition of NV Energy, Nevada’s largest electric utility, which Berkshire purchased in December.

The insurance segment posted an underwriting profit of $411 million, compared with a gain of $530 million a year earlier as results weakened at the reinsurance unit led by Ajit Jain. Geico’s pretax earnings climbed 17 percent to $393 million.

Profit from manufacturing, service and retailing units increased to $1.26 billion in the first quarter from $978 million in the same period in 2013. The group of businesses includes chemical company Lubrizol; Marmon Holdings, a manufacturer of construction materials; and Fruit of the Loom, which makes underwear and other clothing.

Economy Rebounds

U.S. companies are reporting higher profits, consumer spending is picking up and the job market is strengthening as the country rebounds from the 2008 financial crisis. The gross domestic product rose at a 4 percent annualized rate in the second quarter, bouncing back after winter weather contributed to a contraction in the first three months of the year.

Those trends stand to benefit Berkshire. Most of the businesses Buffett has bought over the years are based in the U.S. and the largest equity holdings -- like Wells Fargo & Co. and Coca-Cola Co. -- are American.

Berkshire’s stock portfolio was valued at $119.2 billion on June 30, up from $118.5 billion at the end of March. Cash climbed to a record $55.5 billion.

Net income in the quarter benefited from a $2.06 billion gain on derivatives and investments. In June, Buffett exited most of his stake in Graham Holdings Co. after the former publisher of the Washington Post sold its newspaper to Amazon.com Inc. founder Jeff Bezos.

Graham Transaction

Berkshire turned over more than $1 billion in Graham stock in a deal structured to avoid incurring taxes on shares that had risen more than 100-fold since he bought the them in the 1970s. In return, Graham turned over cash, a Miami television station and Berkshire shares.

The previous quarterly record net income was also fueled by investments. In the fourth quarter of 2005, a $5.13 billion profit was driven by Buffett’s holding in Gillette Co. after it merged with Procter & Gamble Co.

Buffett has long told investors that such one-time gains aren’t relevant to understanding Berkshire’s operating results or economic performance.

Berkshire’s Class A shares have risen 6.4 percent this year in New York to $189,279, beating the 4.2 percent gain in the Standard & Poor’s 500 Index. Book value, a measure of assets minus liabilities, was $142,483 a share as of June 30.

To contact the reporter on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net

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

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