Berkshire Cash Hits Record $49.1 Billion as Profit Climbs

Warren Buffett’s Berkshire Hathaway Inc.’s cash hoard hit a record as first-quarter profit jumped 51 percent on gains from equity-linked derivatives and insurance operations.

Net income climbed to $4.89 billion, or $2,977 a share, from $3.25 billion, or $1,966, a year earlier, the Omaha, Nebraska-based company said yesterday in a statement. The cash pile grew to $49.1 billion from $47 billion three months earlier, eclipsing the previous record of $47.9 billion in the second quarter of 2011.

Berkshire is benefiting as improvements in the housing market help the U.S. economy rebound from the biggest slump since the Great Depression. As chairman and chief executive officer for more than four decades, Buffett transformed his company through takeovers from a textile maker into a firm that hauls freight, generates electricity, sells insurance and manufactures building supplies from bricks to paint.

“This earnings report is the tip of the iceberg,” Bill Smead, portfolio manager of the Smead Value Fund, which owns Berkshire shares, said in an interview in Omaha. “Warren has organized the company around the rebirth of the United States economy over the next 10 years and this is the beginning of that rebirth.”

Class A shares rose 22 percent this year to $162,904 in New York, beating the 13 percent gain in the Standard & Poor’s 500 Index. Class B shares advanced after results were announced, climbing 2.2 percent to $111 at 7:56 p.m. yesterday. Investors can convert a Class A share into 1,500 B shares.

Exceeds Estimate

Operating profit, which excludes some investment results, was $2,302 a share, beating the $1,996 estimate of three analysts surveyed by Bloomberg. Book value, a measure of assets minus liabilities, rose to $120,525 a share from $114,214 at the end of last year.

“It was a good quarter, it wasn’t quite as good a quarter as it looks,” Buffett said today at the company’s annual meeting in Omaha.

The equities portfolio was valued at $97.2 billion on March 31, up from $87.7 billion at the end of 2012 as American Express Co., Coca-Cola Co. and DirecTV rallied. Berkshire increased its stock bet in the category listed as “banks, insurance and finance” in the quarter, Buffett’s firm said in a regulatory filing, without identifying companies.

Berkshire spent $1.41 billion on equities in the quarter after increasing the amount of funds overseen by deputy stock pickers Todd Combs and Ted Weschler, while selling $673 million, according to the filing. There were $1.81 billion in purchases of fixed maturity securities and $675 million in sales.

Derivatives Gain

Derivatives helped results as the gain from equity index puts rose to $1.25 billion in the three months ended March 31 from $689 million a year earlier, after global stocks rallied.

U.S. gross domestic product climbed at a 2.5 percent annualized pace in the first quarter, driven by higher consumer spending and residential construction, data from the Commerce Department showed last week.

Underwriting profit at the insurance unit surged to $901 million, from $54 million a year earlier. Berkshire Hathaway Reinsurance Group added $974 million before taxes, compared with a loss of $191 million a year earlier. At auto insurer Geico, pretax profit more than doubled to $266 million.

At the reinsurance group, which provides coverage for primary carriers, improvements were tied to currency fluctuations and a $255 million one-time pretax gain from the amendment of a life reinsurance deal.

Swiss Re

Berkshire cut some risks tied to a life deal with Swiss Re Ltd. in the first quarter, agreeing to pay the Zurich-based company to reduce the protection that Buffett’s firm provides. The original deal resulted in losses for Berkshire after death payouts were higher than expected.

Buffett, 82, has highlighted the prospects for the world’s largest economy, where most of Berkshire’s operations are based. The company has its “foot to the floor” and will probably set another record for capital spending this year after making a $9.8 billion outlay on plants and equipment in 2012, he wrote in his annual letter to shareholders.

Buffett’s biggest takeover, railroad Burlington Northern Santa Fe, was completed in 2010 in a $26.5 billion transaction. The business contributed $798 million to quarterly earnings, an increase from $701 million a year earlier.

“Our railroad this year is doing very well,” Buffett said today. “Fortunately, a lot of oil has been found close to our railroad tracks.”

Annual Meeting

Earnings from manufacturing, service and retailing units increased to $944 million in the first quarter from $854 million in the same period in 2012. The group of businesses includes IMC International Metalworking, engine-additive maker Lubrizol and Marmon Holdings, a manufacturer of construction materials.

Berkshire is showcasing its operating businesses at the company’s annual meeting in Omaha today. The gathering draws tens of thousands of spectators, who come to hear Buffett and Vice Chairman Charles Munger, 89, answer questions from shareholders, journalists and analysts who follow the company.

Buffett’s track record of generating shareholder returns through stock picks and acquisitions has made him a cult figure for investors. Book value has climbed more than 5,800-fold per share since he took control of Berkshire in the 1960s. The annual meeting has gotten so large that he dubbed it “Woodstock for Capitalists.”

Heinz Deal

Topics at past meetings have ranged from the operating businesses to taxes and politics. Shareholders may ask this year about a deal that Buffett struck with Jorge Paulo Lemann’s 3G Capital to take ketchup maker HJ Heinz Co. private and an agreement with Goldman Sachs Group Inc. that stands to make Berkshire one of the bank’s largest common shareholders.

Buffett also made an agreement on warrants tied to General Electric Co. that could make Berkshire a shareholder without investing additional funds. The contracts on the two companies contributed $520 million in investment gains in the quarter, Berkshire said.

The cost of impairments narrowed to $85 million from $337 million in the first quarter of 2012. The losses in both periods were related to a bond investment in Texas Competitive Electric Holdings.

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