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Berkshire Profit Climbs 49% On Derivative Gains

Berkshire Profit Climbs 49% On Derivative Gains
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Billionaire Warren Buffett's Berkshire Hathaway Inc. (BRK.A; BRK.B) said Friday after the markets closed that its fourth quarter profit climbed 49% from last year, helped by mainly huge derivative gains.

The company's operating earnings for the quarter, which excludes investment and derivative gains/losses, rose 5.2%.

The company's insurance underwriting businesses generated an operating loss of $19 million in the fourth quarter, compared to an operating loss of $107 million in the same quarter last year. Berkshire's insurance group include GEICO and General Re among others.

Insurance investment income for the quarter fell 2% to $805 million from $825 million a year ago.

Fourth quarter operating earnings from the company's non-insurance businesses declined slightly to $2.28 billion from $2.29 billion a year ago. Berkshire completed its acquisition of railroad operator Burlington Northern Santa Fe in February 2010 and lubricant maker Lubrizol Corp. in September 2011.

The Omaha, Nebraska-based company reported net earnings for the fourth quarter of $4.55 billion or $2,757 per Class A equivalent share, compared to $3.05 billion or $1,846 per Class A equivalent share for the year-ago quarter. The latest quarter results include $1.40 billion in derivative gains.

Operating earnings rose to $2.81 billion or $1,704 per Class A equivalent share in the fourth quarter from $2.67 billion or $1,615 per Class A equivalent share in the prior year quarter.

The company's book value increased 14.4% from 2011 year-end to $114,214 per Class A equivalent share at December 31, 2012.

The company ended the fourth quarter and 2012 with cash and cash equivalent of $46.99 billion, up from $37.30 billion a year ago but down from $47.78 billion at the end of the prior quarter.

In his annual letter to shareholders, Buffett said that the company's performance in 2012 was subpar. "For the ninth time in 48 years, Berkshire's percentage increase in book value was less than the S&P's percentage gain (a calculation that includes dividends as well as price appreciation). In eight of those nine years, it should be noted, the S&P had a gain of 15% or more. We do better when the wind is in our face," he wrote in the letter.

His second disappointment in 2012 was his inability to make a major acquisition. "I pursued a couple of elephants, but came up empty-handed," Buffett noted in the letter.

"Our luck, however, changed early this year. In February, we agreed to buy 50% of a holding company that will own all of H. J. Heinz," he added.

Ketchup maker H.J. Heinz Co. (HNZ) last month agreed to be taken private by an investment consortium comprised of Berkshire and New York-based investment fund 3G Capital in a deal valued at about $28 billion, including assumed debt. The deal is deemed as the largest ever in the food industry.

Buffett also said in the letter, "American business will do fine over time. And stocks will do well just as certainly, since their fate is tied to business performance. Periodic setbacks will occur, yes, but investors and managers are in a game that is heavily stacked in their favor."

Buffett, who is also one of the world's richest men, has run Berkshire for nearly five decades. He owns more than $40 billion of stock in Berkshire, which has over 80 units with businesses as varied as insurance, restaurants, furniture, clothing, candy companies, natural gas, railroad and corporate jet leasing.

Berkshire also holds significant stakes in many top-notch companies such as Coca-Cola Co. (KO), Wells Fargo & Co. (WFC), American Express Co. (AEP), International Business Machines Corp. (IBM), Visa, Inc. (V) and Procter & Gamble Co. (PG) among others.

Berkshire's Class A shares closed Friday's regular trading session at $152,750, up $150, and are currently losing 0.62% in after hours trading. The company's Class B shares closed the day's session at $102.05, down 11 cents. The Class B shares are currently losing 1.22% in after hours trading.

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by RTT Staff Writer

For comments and feedback: editorial@rttnews.com

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