Berkshire makes US$6.29bil profit
Company’s Q4 income climbs 15% on investments
NEW YORK: Warren Buffett’s Berkshire Hathaway Inc said fourth quarter profit rose 15%, fuelled by a gain on an investment in Dow Chemical Co.
Net income increased to US$6.29bil, or US$3,823 a share, from US$5.48 bil, or US$3,333, a year earlier, the Omaha, Nebraska-based company said on Saturday in a statement. Operating earnings, which exclude some investment results, were US$2,665 a share, missing the average US$2,717 estimate of three analysts surveyed by Bloomberg.
While Buffett is widely known as a gifted stock picker, Berkshire derives most of its income from the businesses he’s bought during his five decades running the firm. Its dozens of subsidiaries include auto insurer Geico, railroad BNSF, a network of auto dealerships, retailers and electric utilities.
The 86-year-old bilaire keeps adding to the mix. Last year, he completed deals for battery maker Duracell and Precision Castparts, a supplier to the aerospace industry, helping to boost profit in his company’s manufacturing segment.
Full year net income was US$24.1bil, little changed from the record in 2015. Book value, a measure of assets minus liabilities, climbed to US$172,108 per share at the end of December from US$163,783 three months earlier. Buffett’s stock picks and takeovers have helped build the figure more than 8,000-fold since he took control of Berkshire in 1965.
The insurance businesses had a fourth-quarter underwriting gain of US$548mil, driven by results at Berkshire Hathaway Reinsurance Group. That compares with US$306 mil a year earlier. Investment income from the units fell to US$889mil from US$1.03bil during the same period in 2015. The railroad, BNSF, contributed US$993mil to quarterly earnings, compared with US$1.08bil a year earlier.
Falling demand for hauling energy-related good hurt results in 2016.
“Coal had the largest decline, driven by structural changes in that business as well as competition from low natural gas prices,” Berkshire said in its annual report. “While natural gas prices and the amount of electricity burn will affect the demand for coal in 2017, our longterm demand outlook for US and global coal consumption is lower.”
Berkshire Hathaway Energy’s profit rose to US$432mil from US$423mil 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.
The manufacturing, service and retail segment, which includes toolmaker Iscar and chemical company Lubrizol, added US$1.17bil to earnings, compared with US$1.07bil a year earlier. Some fourth-quarter results were calculated by subtracting figures for the first nine months from the full-year data provided Saturday. Buffett tells investors to focus on the earnings from his stable of operating businesses, rather than one-time gains or losses on Berkshire’s securities portfolio. That’s because results can fluctuate widely on investments and derivatives contracts that he entered years ago.
In the fourth quarter, Dow converted Berkshire’s US$3bil preferred stake to more than US$4bil of common stock, resulting in a gain of about US$1.2bil. The investment dates to the chemical maker’s 2009 takeover of Rohm & Haas, a transaction that Buffett helped finance. Berkshire said in its annual report that it sold the Dow common stock by Dec 31. Berkshire changed how it lists some holdings on its balance sheet. As of Dec 31, the firm had about US$28bil of cash and cash equivalents, as well as more than US$58bil of US Treasury bills for a total of about US$86bil.
A filing showing Sept 30 data, which didn’t break out Treasury bills, showed US$84.8bil in cash.
The billionaire accelerated his purchases of stock after the US election. The equity portfolio was valued at US$122bil at the end of the fourth quarter, up from US$102.5bil on Sept 30. Two of Buffett’s largest holdings, Wells Fargo & Co and American Express Co, rallied in the last three months of the year. Berkshire also disclosed this month that it sharply increased its stake in Apple Inc and the four largest US airlines during the period.
Berkshire had a gain of about US$1.9bil on derivatives and investments, helped by Dow Chemical. That compares to a gain of US$805mil a year earlier. Buffett has been working to simplify his company’s stockpile of derivatives. In July, he wound down the last contract that provided protection against losses on bonds.
Berkshire still has derivatives related to the performance of stock market indexes.
Berkshire increased its headcount by about 1.8% in the year to 367,671 employees.