UPDATE 2-Berkshire Hathaway net down 8 pct, insurance drags
(Adds comments, financial details, background throughout)
By Jonathan Stempel
NEW YORK, Aug 8 (Reuters) - Warren Buffett's Berkshire Hathaway Inc (BRKa.N)(BRKb.N) said on Friday second-quarter profit fell 8 percent, the third straight quarterly decline, hurt by weaker results from insurance underwriting.
"This was a particularly costly quarter for insurers in terms of catastrophe losses," said Chuck Hamilton, senior equity analyst at FTN Midwest Securities Corp in Nashville, who has a "neutral" rating on Berkshire.
Net income for Omaha, Nebraska-based Berkshire fell to $2.88 billion, or $1,859 per Class A share, from $3.12 billion, or $2,018, a year earlier.
Operating profit for the insurance and investment company declined 10 percent to $2.27 billion, or $1,465 per share, from $2.51 billion, or $1,625.
On that basis, analysts on average expected profit of $1,370 per share, according to Reuters Estimates. Revenue rose 10 percent to $30.09 billion.
Insurance underwriting profit fell 43 percent to $360 million. Berkshire boosted insurance premiums following Hurricane Katrina in 2005, but Buffett has said prices and profit margins have since fallen. Insurance typically comprises about half of Berkshire's results.
The period was also the first full quarter to reflect results from Marmon Holdings Inc, a maker of such products as railroad tank cars and pipes. In March, Berkshire paid Chicago's Pritzker family $4.5 billion for a 60 percent stake. Marmon generated a $261 million pre-tax profit in the quarter.
Berkshire also had a $689 million net gain tied to some derivatives contracts, in part because of interest rate changes and as the U.S. dollar rose against the Japanese yen.
"The surprise to us was the contribution of Marmon to results, and better-than-expected results from derivatives positions," Hamilton said.
Berkshire said investment income rose 3 percent in the quarter to $884 million, while profit from non-insurance businesses rose 4 percent to $1.09 billion.
The quarter was the second since Buffett created a bond insurer, Berkshire Hathaway Assurance Corp, to compete with rivals that struggled with guarantees of subprime mortgages. That unit generated about $520 million of business in the year's first half, Berkshire said.
In trading on Friday, Berkshire's Class A shares closed up $275 at $115,750, while its Class B shares fell $6 to $3,848.
INSURANCE WEAKNESS
Pre-tax underwriting gains at auto insurer Geico Corp fell 8 percent to $298 million, as the average premium per policy fell. Gains before taxes fell 56 percent to $102 million at General Re Corp, which rejected some business where it did not believe it was getting paid enough for the underwriting risk.
"We celebrate lower insurance premiums," said Thomas Russo, a principal at Gardner Russo & Gardner in Lancaster, Pennsylvania, a Berkshire shareholder. "When prospects worsen for the industry, Berkshire is supposed to write less."
Underwriting gains at Berkshire Hathaway Reinsurance Group, meanwhile, fell 78 percent to $79 million.
In other businesses, net income from utilities and energy fell 9 percent to $220 million, while income from manufacturing and retailing businesses rose 11 percent to $719 million, including the effect of Marmon.
Buffett has transformed Berkshire since 1965 into a roughly $179 billion conglomerate by acquiring out-of-favor companies with strong earnings and management, and investing in stocks.
The company's book value fell to $117.99 billion from $119.37 billion at the end of March. Berkshire trimmed its cash stake to $31.16 billion from $35.57 billion over that period.
Berkshire on April 28 committed $6.5 billion as part of Mars Inc's purchase of chewing gum maker Wm Wrigley Jr Co WWY.N. Then on July 10, after the quarter ended, it agreed to invest $3 billion as part of Dow Chemical Co's (DOW.N) purchase of specialty chemicals maker Rohm and Haas Co ROH.N.
Buffett in May traveled to Europe, saying he wanted Berkshire to be on the radar screen of family-owned companies looking for buyers.
"Clearly, Warren Buffett has been active this quarter, and with $31 billion of cash, he can still go shopping," Hamilton said. "I expect him to do some shopping in Europe this year." (Additional reporting by Dan Wilchins; Editing by Andre Grenon)
