* Q2 profit down more than $300 mln from a year earlier
* Derivative losses overshadow operating performance
* Cash pile again tops $40 bln
By Ben Berkowitz
Aug 3 Warren Buffett's ice-cream-to-insurance
conglomerate Berkshire Hathaway reported a smaller
profit for the second quarter on Friday as losses on derivatives
dragged down results, though operating income set the new
records Buffett predicted.
Buffett eschews derivatives for the most part, but he does
have one outstanding - and large - derivative bet tied to stock
market performance. While he has said repeatedly he expects that
position to be profitable over time, it generated nearly $700
million in losses in the last quarter.
Berkshire earned $3.11 billion, or $1,882 per Class A share,
compared with a profit of $3.42 billion, or $2,072 per Class A
share a year earlier.
Book value, Buffett's preferred measure of Berkshire's
worth, rose to $107,377 per Class A share. The company's ongoing
share buyback is capped at prices no higher than 110 percent of
that book value.
Berkshire's cash pile as of the end of the quarter ballooned
to $40.66 billion, up more than $3 billion since the year began.
Buffett has been itching to make a major acquisition; a deal
of more than $20 billion fell through earlier this year, and he
has said a deal larger than $30 billion could be possible next
year if he does nothing substantial in 2012.
One long-term Berkshire investor brushed aside the
derivatives hit and said the cash build was the thing to watch
in the near term.
"Derivatives are less of an issue as investors recognize
that the asset is a long-term play, not a short-term strategy.
And as Buffet normally does, cash flow is piling up for more
beta purchases," said Michael Yoshikami, CEO of Destination
Wealth Management in California, which holds more than $12
million in Berkshire stock.
OPERATING RESULTS RISE
Operating income rose at almost all of Berkshire's key
business lines, with the exception of distribution services
company McLane Co. Earlier this year, he predicted the
non-insurance businesses would set income records in 2012.
Operating income was nearly $1 billion higher in the
insurance group, as the reinsurance operations recovered from
last year's massive disaster losses. Within the group, income
dropped slightly at auto insurer Geico on higher loss costs for
bodily injury and damage to vehicles.
Berkshire's railroad BNSF reported higher revenue and
income, as increased volumes for consumer and industrial
products transported offset sharp declines in volume for both
coal and agricultural products.
McLane's income fell, Berkshire said, because the year-ago
quarter benefited from manufacturer price increases on a number
of products. That benefit was absent in the most recent quarter.
The results also bear out comments Buffett made in mid-July
that housing had started to show signs of a rebound, albeit off
a very low base.
Berkshire's housing-related businesses picked up in the
quarter, led by double-digit revenue increases at the
manufactured home builder Clayton Homes.
Another Berkshire investor said the results confirm the
long-term shift in the company away from its reliance on the
insurance business to make money, a shift that was accelerated
with the BNSF acquisition.
"The non-insurance side is the driver ... the core of this
conglomerate now is on the non-insurance side," said David
Rolfe, chief investment officer of Wedgewood Partners. "When
expectations are so low and muted, this is fantastic."