Berk­shire Hath­away profit climbs 32 per­cent

The Pak Banker - - COMPANIES/BOSS -

Berk­shire Hath­away Inc., the con­glom­er­ate con­trolled by bil­lion­aire War­ren Buf­fett, said fourth-quar­ter profit climbed 32 per­cent on in­vest­ments and earn­ings from the com­pany's ex­pand­ing sta­ble of op­er­at­ing busi­nesses.

Net in­come rose to $5.48 bil­lion, or $3,333 a share, from $4.16 bil­lion, or $2,529, a year ear­lier, the com­pany said Satur­day in a state­ment. Op­er­at­ing earn­ings, which ex­clude some in­vest­ment re­sults, were $2,843 a share, beat­ing the av­er­age $2,814 es­ti­mate of three an­a­lysts sur­veyed by Bloomberg.

The re­sults cap an­other record year for Buf­fett, Berk­shire's chair­man and chief ex­ec­u­tive of­fi­cer. Over the past five decades, he has built the Omaha, Ne­braska-based com­pany into a sprawl­ing en­ter­prise with a stock port­fo­lio val­ued at more than $110 bil­lion and in­ter­ests in in­sur­ance, en­ergy, man­u­fac­tur­ing, me­dia, retail and trans­porta­tion.

While Berk­shire's in­sur­ance and in­vest­ment re­sults fluc­tu­ate widely, the com­pany owns dozens of busi­nesses that churn out stead­ier earn­ings. In re­cent years, profit from th­ese units -- in­clud­ing rail­road BNSF and a col­lec­tion of elec­tric util­i­ties -- has be­come a big­ger por­tion of the bot­tom line be­cause of Buf­fett's re­lent­less deal­mak­ing.

Berk­shire bought a net­work of U.S. car deal­er­ships in 2015, and also struck one of its big­gest deals ever: the $37.2 bil­lion buy­out of aero­space man­u­fac­turer Pre­ci­sion Cast­parts Corp. That trans­ac­tion was com­pleted af­ter the fourth quar­ter. Buf­fett's com­pany said Satur­day that it also ex­pects to com­plete the ac­qui­si­tion of the Du­ra­cell bat­tery busi­ness from Proc­ter & Gam­ble Co. this month. "We are get­ting a de­cent re­turn on the cap­i­tal we have de­ployed" for man­u­fac­tur­ing busi­nesses, a cat­e­gory that in­cludes chem­i­cal com­pany Lubri­zol and tool­maker Is­car, Buf­fett said in his an­nual let­ter Satur­day. "Earn­ings from the group should grow sub­stan­tially in 2016 as Du­ra­cell and Pre­ci­sion Cast­parts en­ter the fold."

Last year high­lighted some of the chal­lenges Buf­fett, 85, faces keep­ing his money-mak­ing ma­chine mov­ing for­ward. Even as he agreed to buy Pre­ci­sion Cast­parts and made bil­lions on an in­vest­ment in the food in­dus­try, some of Buf­fett's ma­jor stock hold­ings slumped. Berk­shire's own shares ended 2015 down 12 per­cent, com­pared with the 0.7 per­cent fall in the Stan­dard & Poor's 500 In­dex.

Since the start of 2016, how­ever, Berk­shire has out­per­formed. Shares were up 0.2 per­cent through Fri­day to $198,191, com­pared with the 4.7 per­cent slide in the equity bench­mark. Full-year net in­come rose to $24.1 bil­lion from $19.9 bil­lion in 2014, which had been a record. The 2015 re­sult was fu­eled by a third-quar­ter in­vest­ment gain in Kraft Heinz Co. Book value, a mea­sure of as­sets mi­nus li­a­bil­i­ties, rose to $155,501 per share at Dec. 31 from $151,083 three months ear­lier and $146,186 at the end of 2014. That growth out­paced the gain in the S&P 500. Buf­fett's stock picks and takeovers have helped build the fig­ure more than 7,900-fold since he took con­trol of Berk­shire in 1965.

The in­sur­ance busi­nesses had a fourth-quar­ter un­der­writ­ing gain of $306 mil­lion driven by im­prove­ments at Gen­eral Re and BH Rein­sur­ance. That com­pares with a gain of $191 mil­lion a year ear­lier. Geico posted an $11 mil­lion un­der­writ­ing loss in the quar­ter, as the auto in­surer has been pres­sured by higher claims costs. Some fourth-quar­ter re­sults were cal­cu­lated by sub­tract­ing fig­ures for the first nine months from the full-year data pro­vided Satur­day.

Profit at Berk­shire's big­gest unit, BNSF, fell 9.2 per­cent to $1.08 bil­lion, pres­sured by lower de­mand for coal. Vol­umes may fall this year as low fuel prices limit ship­ments of pe­tro­leum prod- ucts and ma­te­rial used for ex­tract­ing oil, the com­pany said. The util­ity seg­ment, Berk­shire Hath­away En­ergy, con­trib­uted $423 mil­lion, an in­crease of 18 per­cent from a year ear­lier. The busi­ness op­er­ates elec­tric grids in the U.K., nat­u­ral gas pipe­lines that stretch from the Great Lakes to Texas and power com­pa­nies in states in­clud­ing Iowa and Ne­vada.

Profit from Berk­shire's busi­nesses and in­vest­ments con­tin­ued to pile up. Cash in­creased 8.3 per­cent from the end of the third quar­ter to $71.7 bil­lion on Dec. 31. Buf­fett spent $32 bil­lion in early 2016 to com­plete his ac­qui­si­tion of Pre­ci­sion Cast­parts, a deal in which he also as­sumed about $5 bil­lion of debt.

The stock port­fo­lio was val­ued at $112.3 bil­lion at the end of the year, up from $110.3 bil­lion on Sept. 30. Some of Buf­fett's large hold­ings have come un­der pres­sure re­cently. In­ter­na­tional Busi­ness Ma­chines Corp. trades for less than he paid to amass the stake in 2011. Amer­i­can Ex­press Co. has plunged over the past year. The bil­lion­aire has been adding shares of Phillips 66. Buf­fett and his deputy in­vest­ment man­agers, Todd Combs and Ted Weschler, spent $1.41 bil­lion on eq­ui­ties and $2.82 bil­lion on fixed-ma­tu­rity se­cu­ri­ties in the quar­ter. Berk­shire sold about $3 bil­lion in stock and $1.38 bil­lion of bonds dur­ing the pe­riod.

Berk­shire had a gain of $805 mil­lion on de­riv­a­tives and in­vest­ments in the fourth quar­ter, com­pared with a gain of $192 mil­lion a year ear­lier. Some of the de­riv­a­tive con­tracts ben­e­fited re­cently be­cause of a strength­en­ing U.S. dol­lar. The man­u­fac­tur­ing, ser­vice and retail seg­ment added $1.07 bil­lion to earn­ings, com­pared with $1.05 bil­lion a year ear­lier. Berk­shire has about 361,270 em­ploy­ees, up 6.1 per­cent from the prior an­nual re­port. The big­gest ad­di­tions were tied to the ac­qui­si­tions of Pre­ci­sion Cast­parts and the car deal­er­ship busi­ness for­merly known as Van Tuyl.

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