BERK­SHIRE PROFIT FALLS AS UN­DER­WRIT­ING LOSS OFF­SETS RAIL­ROAD GAINS

Kuwait Times - - BUSINESS - Rail­road MORE CASH, MORE STOCKS

War­ren Buf­fett’s Berk­shire Hath­away Inc on Fri­day re­ported a 15 per­cent drop in sec­ond-quar­ter profit, as lower in­vest­ment gains and a loss from in­sur­ance un­der­writ­ing off­set im­prove­ment in its BNSF rail­road busi­ness.

Op­er­at­ing profit also fell short of an­a­lyst fore­casts, though Berk­shire at­trib­uted much of the de­cline to cur­rency fluc­tu­a­tions and its ac­count­ing for a ma­jor con­tract with the in­surer Amer­i­can In­ter­na­tional Group Inc. Net in­come for Omaha, Ne­braska-based Berk­shire fell to $4.26 bil­lion, or $2,592 per Class A share, from $5 bil­lion, or $3,042 per share, a year ear­lier.

Op­er­at­ing profit de­clined 11 per­cent to $4.12 bil­lion, or $2,505 per Class A share, from $4.61 bil­lion, or $2,803 per share. An­a­lysts on av­er­age ex­pected op­er­at­ing profit of about $2,791 per share, ac­cord­ing to Thom­son Reuters I/B/E/S. Buf­fett be­lieves op­er­at­ing in­come is a bet­ter gauge of how Berk­shire and its more than 90 busi­nesses are do­ing than net in­come, which fluc­tu­ates more be­cause it in­cor­po­rates in­vest­ment and de­riv­a­tive gains, which fell 64 per­cent from a year ear­lier.

Book value per share, Buf­fett’s pre­ferred mea­sure of growth, rose 2.7 per­cent from the end of March to $182,816. The com­pany’s stock price, mean­while, set a record high on Fri­day, with Class A shares clos­ing up $1,629.80 at $270,000. “They had a good quar­ter,” said Bill Smead, chief ex­ec­u­tive of Smead Cap­i­tal Man­age­ment Inc in Seat­tle, which owns Berk­shire shares. “The re­sults re­flect Berk­shire’s po­si­tion­ing in the US econ­omy.”

BNSF saw profit rise 24 per­cent to $958 mil­lion, helped by high sin­gle-digit per­cent­age in­creases in freight rev­enue from con­sumer and in­dus­trial prod­ucts, and dou­ble-digit in­creases from agri­cul­tural prod­ucts and coal. Profit from man­u­fac­tur­ing, ser­vice and re­tail­ing units rose 10 per­cent to $1.66 bil­lion, helped by greater de­mand for prod­ucts from its IMC In­ter­na­tional Me­tal­work­ing unit.

Such gains helped off­set a sec­ond straight quar­terly loss from in­sur­ance un­der­writ­ing, to­tal­ing $22 mil­lion com­pared with a year ear­lier $337 mil­lion profit. Berk­shire said that weak­ness re­flected losses from cur­rency changes, higher claims pay­outs at the Ge­ico auto in­sur­ance unit, and the amor­ti­za­tion of de­ferred charges from its Jan­uary agree­ment to take on long-term AIG prop­erty and ca­su­alty risks in ex­change for $10.2 bil­lion up­front. That con­tract helped boost float, or the amount of in­sur­ance premi­ums col­lected be­fore claims are paid and which help fund Berk­shire’s growth, to $107 bil­lion from $91 bil­lion at year end. Berk­shire ended June with about $99.7 bil­lion of cash and equiv­a­lents, plus large in­vest­ments in shares of Kraft Heinz Co , Wells Fargo & Co, Ap­ple Inc and Coca-Cola Co. It bought just over $3 bil­lion of stocks in the quar­ter, and is poised to be­come Bank of Amer­ica Corp’s big­gest share­holder by ex­er­cis­ing stock war­rants at be­low-mar­ket prices, for what would now be a $12.5 bil­lion pa­per profit. Berk­shire has found uses for some of its grow­ing cash hoard. Its Berk­shire Hath­away En­ergy unit, whose quar­terly profit rose 7 per­cent, hopes to spend $9 bil­lion to buy the par­ent of Texas power trans­mis­sion com­pany On­cor Elec­tric De­liv­ery Co out of bank­ruptcy.

And in June, Buf­fett threw a C$2 bil­lion fi­nanc­ing life­line to Home Cap­i­tal Group Inc, Canada’s largest non­bank lender, which was strug­gling with a de­posit ex­o­dus and had ad­mit­ted to con­ceal­ing mort­gage fraud. Thanks to Buf­fett, Home Cap­i­tal said this week that is­sues over whether it can sur­vive have been re­solved. Berk­shire’s op­er­at­ing busi­nesses also in­clud­ing smaller units that sell such things as See’s Candies, Dairy Queen ice cream and Brooks run­ning shoes.

— AP

WASH­ING­TON: In this June 14, 2016 file photo, Berk­shire Hath­away Chair­man and CEO War­ren Buf­fett ad­dresses the White House Sum­mit on the United State of Women in Wash­ing­ton.

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