NEW YORK, Aug 8 — Warren Buffett's Berkshire Hathaway Inc posted its best quarter in nearly two years, as recovering stock markets boosted the value of its equity investments and derivatives bets.
Operating earnings nevertheless fell short of expectations, reflecting lower underwriting gains, including from the Geico Corp auto insurance unit, and the impact of the recession on Berkshire's more economically sensitive manufacturing and service units.
Second-quarter net income for the Omaha, Nebraska-based insurance and investment company rose 14 per cent to US$3.3 billion (RM11.5 billion), or US$2,123 per Class A share, from US$2.88 billion, or US$1,859, a year earlier. Earnings had previously fallen for six straight quarters.
Excluding investments, operating profit fell 22 per cent to US$1.78 billion, or US$1,147 per share, from US$2.27 billion, or US$1,465. On that basis, analysts expected profit of US$1,238 per share, according to Reuters Estimates. Revenue fell 2 per cent to US$29.61 billion.
Results included US$1.53 billion of derivatives gains. These were tied mainly to the performance of four market indexes in the United States, Europe and Japan, which rose between 8 per cent and 23 per cent in the quarter.
The derivatives are a major reason earnings had fallen in recent quarters. Accounting rules require Berkshire to report changes in their value with earnings. Berkshire said the bets will continue to generate "extreme volatility" in earnings.
Berkshire's book value rose 11 per cent to US$114.53 billion from US$102.8 billion in the prior quarter, and on a per-share basis rose to US$73,806 from US$66,248.
Net income was the highest since the third quarter of 2007, Reuters data show.
Berkshire's common stock holdings increased 22 per cent from the first quarter to US$45.79 billion, reflecting price changes as well the purchase of US$350 million of stock.
The company is the largest shareholder of American Express Co and Wells Fargo & Co, whose shares rose a respective 71 percent and 70 percent in the quarter.
While Berkshire on June 30 had US$8.23 billion of paper losses on the stock index derivatives, that was down from US$10.19 billion at the end of March.
Berkshire said it modified six of the derivative contracts during the quarter, reducing potential losses.
These derivative contracts now mature between 2018 and 2028, and Buffett has said he expects them to be profitable.
Meanwhile, liabilities on contracts tied to the default rates on junk bonds fell to US$2.51 billion from US$3.67 billion. Buffett has said these contracts may lose money.
Insurance underwriting profit fell 77 per cent to US$83 million, as customers of Geico had higher claims losses, while the weak economy caused them to raise deductibles and reduce coverage to save money, Berkshire said.
Though premiums increased, Berkshire now expects underwriting gains at Geico to fall in 2009 from 2008.
Berkshire ended June with US$24.51 billion in cash, down from US$25.55 billion three months earlier.
In yesterday’s trading, Berkshire Class A shares closed up US$1,150, or 1.1 per cent, at US$108,100, while its Class B shares rose US$22.69, or 0.65 per cent, to US$3,540. Both remain more than one-fourth below their record highs set in December 2007. — Reuters
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