NEW YORK: Warren Buffett's Berkshire Hathaway Inc said on Friday, Aug 6 second-quarter profit fell 40 percent, as declining stock prices depressed the value of his derivative contracts.
Operating profit nevertheless soared 73 percent, helped by the takeover of railroad operator Burlington Northern Santa Fe Corp, improvement in insurance underwriting results, and a turnaround in performance at the NetJets corporate plane unit.
Net income fell to $1.97 billion, or $1,195 per Class A share, from $3.3 billion, or $2.123, a year earlier.
Excluding investments, operating profit rose to $3.07 billion, or $1,866 per share, from $1.78 billion, or $1,147.
Analysts on average expected operating profit of $1,360 per share, according to Thomson Reuters I/B/E/S.
"The numbers look good," said Michael Yoshikami, president of YCMNET Advisors in Walnut Creek, California, which invests $1 billion and owns Berkshire stock. "What people often miss about Berkshire is that, while it is perceived as an acquirer of staid companies, it is a very good operator that extracts as much free cash flow as possible."
In Friday trading on the New York Stock Exchange, Berkshire Class A shares closed down $785 at $120,600, and its Class B shares closed down 36 cents at $80.47.
DERIVATIVES
Berkshire recorded $1.41 billion of losses on derivatives, including long-term contracts tied to equity indexes, compared with a year-earlier $1.53 billion profit.
Buffett has said these indexes are the Standard & Poor's 500, the FTSE 100, the Euro Stoxx 50 and the Nikkei 225, which fell between 11.9 percent 15.4 percent in the quarter.
Berkshire must incorporate its derivative gains and losses each quarter on its balance sheets, which added to quarterly earnings volatility. Buffett has nevertheless repeatedly said he expects the contracts to be profitable.
In a regulatory filing, Berkshire added it does not believe the financial regulatory overhaul signed into law last month by President Barack Obama will materially affect results or force it to post extra collateral on its contracts.
Nonetheless, stock market fluctuations do affect book value, Buffett's preferred measure for performance. Berkshire's book value per class A share, fell 3 percent to $86,661 as of June 30 from $89,374 as of March 31.
Results included $603 million of profit from Burlington Northern, in the first full quarter since Berkshire in February paid $26.5 billion for the 77.5 percent it did not already own of the second-largest U.S. railroad company.
Insurance operations, Berkshire's biggest business, saw operating profit jump 23 percent to $1.55 billion, including a sevenfold increase in underwriting profit to $462 million.
Berkshire said NetJets posted a $57.5 million pre-tax profit, compared with a year-earlier $252.5 million loss, after Buffett installed David Sokol, who chairs Berkshire's MidAmerican Energy Holdings unit, to turn that unit around. - Reuters
Operating profit nevertheless soared 73 percent, helped by the takeover of railroad operator Burlington Northern Santa Fe Corp, improvement in insurance underwriting results, and a turnaround in performance at the NetJets corporate plane unit.
Net income fell to $1.97 billion, or $1,195 per Class A share, from $3.3 billion, or $2.123, a year earlier.
Excluding investments, operating profit rose to $3.07 billion, or $1,866 per share, from $1.78 billion, or $1,147.
Analysts on average expected operating profit of $1,360 per share, according to Thomson Reuters I/B/E/S.
"The numbers look good," said Michael Yoshikami, president of YCMNET Advisors in Walnut Creek, California, which invests $1 billion and owns Berkshire stock. "What people often miss about Berkshire is that, while it is perceived as an acquirer of staid companies, it is a very good operator that extracts as much free cash flow as possible."
In Friday trading on the New York Stock Exchange, Berkshire Class A shares closed down $785 at $120,600, and its Class B shares closed down 36 cents at $80.47.
DERIVATIVES
Berkshire recorded $1.41 billion of losses on derivatives, including long-term contracts tied to equity indexes, compared with a year-earlier $1.53 billion profit.
Buffett has said these indexes are the Standard & Poor's 500, the FTSE 100, the Euro Stoxx 50 and the Nikkei 225, which fell between 11.9 percent 15.4 percent in the quarter.
Berkshire must incorporate its derivative gains and losses each quarter on its balance sheets, which added to quarterly earnings volatility. Buffett has nevertheless repeatedly said he expects the contracts to be profitable.
In a regulatory filing, Berkshire added it does not believe the financial regulatory overhaul signed into law last month by President Barack Obama will materially affect results or force it to post extra collateral on its contracts.
Nonetheless, stock market fluctuations do affect book value, Buffett's preferred measure for performance. Berkshire's book value per class A share, fell 3 percent to $86,661 as of June 30 from $89,374 as of March 31.
Results included $603 million of profit from Burlington Northern, in the first full quarter since Berkshire in February paid $26.5 billion for the 77.5 percent it did not already own of the second-largest U.S. railroad company.
Insurance operations, Berkshire's biggest business, saw operating profit jump 23 percent to $1.55 billion, including a sevenfold increase in underwriting profit to $462 million.
Berkshire said NetJets posted a $57.5 million pre-tax profit, compared with a year-earlier $252.5 million loss, after Buffett installed David Sokol, who chairs Berkshire's MidAmerican Energy Holdings unit, to turn that unit around. - Reuters
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