Berkshire profits surge
NEW YORK (Reuters) - Warren Buffett's Berkshire Hathaway Inc. said on Thursday fourth-quarter operating profit surged 56 percent, and full-year net earnings topped $11 billion, helped by a lack of hurricanes.
In his annual letter to Berkshire shareholders, the 76-year-old Buffett also said he is seeking a "younger" person to succeed him as Berkshire's chief investment officer.
He has said he plans to split his job into the chief executive and CIO roles, and he has three internal candidates for CEO. Buffet said Geico Corp. investment chief Lou Simpson, who is six years younger than him, has been his choice for CIO, but is now too old to serve more than temporarily.
Still, Buffett gave no hint he's ready to step down. "I feel terrific and, according to all measurable indicators, am in excellent health," he wrote. "It's amazing what Cherry Coke and hamburgers will do for a fellow."
Fourth-quarter operating profit rose to $2.87 billion, or $1,859 per Class A share, from $1.84 billion, or $1,196 per share, a year ago. Revenue rose 3 percent to $26.23 billion.
Analysts, on average, expected profit of $1,401 per share, according to Reuters Estimates.
Net income fell 30 percent to $3.58 billion, or $2,323 per share, from $5.13 billion, or $3,330 a share, mainly because of a $3.25 billion year-ago gain related to Procter & Gamble Co.'s purchase of longtime Berkshire favorite Gillette Co.
Full-year profit rose 29 percent to $11.02 billion, or $7,144 per share, while operating profit surged 86 percent to $9.31 billion, or $6,036 per share. Berkshire said its book value rose 18.5 percent to $108.4 billion, or $70,281 a share.
"Our most important business, insurance, benefited from a large dose of luck: Mother Nature, bless her heart, went on vacation," Buffett wrote. "Red ink from this activity turned black, very black."
NO STORMS
Following a 2005 storm season that included $3.4 billion of payments for hurricane damage, Omaha, Nebraska-based Berkshire raised premiums as many rivals cut back on underwriting.
Insurance usually generates more than half of profit. Geico, an auto insurer, boosted policies by 11 percent, helped by advertising featuring talking geckos and Little Richard.
"It was a tremendous year, a banner year," said Justin Fuller, an equity analyst at Morningstar Inc. "Geico is knocking the covers off the ball, and reinsurance results were strong because of the tranquil hurricane season."
Buffett said insurance results should "deteriorate" but be "satisfactory" in 2007. He said Berkshire remains prepared to lose $6 billion from a single storm, though it has "sharply reduced" exposure to wind claims because rates are falling.
Berkshire's Class A shares ended Thursday up $410 at $106,600 and its Class B shares rose $31 to $3,554. The Class A shares are up 23 percent in the last year, topping 9 percent gains in the S&P 500 and insurance indexes.
Some investors say Berkshire remains undervalued. Steven Check, who oversees $550 million at Check Capital Management in Costa Mesa, California, said $117,000 a share is a "very conservative" valuation, based on 10 times pre-tax profit of $3,625 per share and investments of $80,636 per share.
SUCCESSION
Known as the Oracle of Omaha, Buffett has transformed Berkshire since 1965 from a failing textile company into a $164 billion conglomerate by buying out-of-favor companies with strong management and businesses, and investing in stocks.
Analysts say potential Berkshire CEOs could include General Re Corp.'s Joseph Brandon, Berkshire Hathaway Reinsurance's Ajit Jain, Geico's Tony Nicely, NetJets Inc.'s Rich Santulli, and MidAmerican Energy Holdings Co.'s David Sokol.
Berkshire owns more than 50 companies that make such things as Benjamin Moore paint, Dairy Queen ice cream and Fruit of the Loom underwear, and invests in such stocks as American Express Co., Coca-Cola Co. and Wells Fargo & Co.
Berkshire ended the year with $43.74 billion of cash, despite acquisitions including utility PacifiCorp, apparel maker Russell Corp. and Israel's Iscar Metalworking Cos.
It has nearly eliminated its more-than-four-year bet against the U.S. dollar -- one that generated a $2.2 billion gain. Buffett began buying foreign currency contracts in 2002, amid concern about U.S. trade and budget deficits.
Buffett is the world's richest person after Microsoft Corp. Chairman and Berkshire director Bill Gates.
In June, Buffett pledged most of his fortune, estimated in September at $46 billion by Forbes magazine, to the Bill & Melinda Gates Foundation and four family charities.
Buffett also said Susan Decker, chief financial officer at Internet media company Yahoo Inc., will join Berkshire's board at the May 5 annual meeting.
