Berkshire Hathaway profit up 64 pct on investments
NEW YORK (Reuters) - Warren Buffett's Berkshire Hathaway Inc (BRKa.N) (BRKb.N) said on Friday its third-quarter profit rose 64 percent, as gains from PetroChina Co (0857.HK) and other investments helped offset weaker results from insurance, its main business.
Net income for the Omaha, Nebraska-based insurance and investment company rose to $4.55 billion, or $2,942 per Class A share, from $2.77 billion, or $1,797, a year earlier.
Operating profit, excluding investments, fell 1 percent to $2.56 billion, or $1,655 per share, from $2.6 billion, or $1,684.
Analysts on average had expected operating profit of $1,509 per share, according to Reuters Estimates.
Results included $1.99 billion of gains from investments, up from $174 million a year earlier, as Berkshire sold $3.7 billion of stock. The gains helped offset a 47 percent drop in insurance underwriting profit.
"Pricing is clearly getting softer in reinsurance relative to the unprecedented strength a year ago, in the wake of Hurricane Katrina," said Whitney Tilson, managing partner at T2 Partners LLC in New York, which invests $140 million of hedge fund capital and owns Berkshire.
Revenue rose 18 percent to $29.94 billion. Berkshire ended the quarter with $47.08 billion of cash, giving Buffett the ability to make the big acquisition he says he wants. Berkshire has spent just $1.7 billion on acquisitions in 2007.
Critics had linked PetroChina to genocide in the Darfur region of Sudan and called on Buffett to sell his stake in the Chinese oil company, which cost him $488 million. Buffett last month said he sold based solely on PetroChina's valuation.
Insurance underwriting profit fell to $486 million and insurance investment income rose 21 percent to $922 million. Profit from other businesses rose 20 percent to $1.17 billion.
Berkshire's Class A shares closed up $1,250 at $132,500, and its Class B shares rose $25 to $4,402. The Class A shares are up 20 percent this year, while the Standard & Poor's 500 .SPX and insurance .GSPINSC indexes are up 6 percent and down 6 percent, respectively.
INSURANCE COMPETITION
Known as the Oracle of Omaha, Buffett has transformed Berkshire since 1965 from a failing textile company into a $205 billion conglomerate by acquiring out-of-favor companies with strong earnings and management, and investing in stocks.
The market value exceeds those of Citigroup Inc (C.N) and Bank of America Corp (BAC.N), the largest U.S. banks.
Berkshire said it ended September with $77.9 billion of equity investments and $29.6 billion in fixed income. It said it bought $5.39 billion of stocks in the quarter and $5.71 billion of fixed-income investments.
Pre-tax underwriting gains at Geico Corp fell 18 percent to $335 million as the average premium per policy declined. They fell 11 percent at the General Re Corp reinsurance unit to $157 million, reflecting policy cancellations.
Within the reinsurance group, underwriting gains fell 75 percent to $183 million, as growing competition made it harder to find business worth the risk.
"You want to see them do that when prices weaken, because it shows underwriting discipline," said James Armstrong, president of Henry H. Armstrong Associates in Pittsburgh, which invests $500 million, including 20 percent in Berkshire.
In other businesses, net income from utilities and energy rose 36 percent to $354 million and from manufacturing and retailing businesses rose 21 percent to $647 million.
Currencies generated a $26 million gain. Buffett has unwound most of a $21 billion bet against the U.S. dollar, but said on television last month he retained a stake in the Brazilian currency, the real.
Berkshire owns more than 70 companies that make such things as paint, ice cream and underwear. It also invests in stocks including American Express Co (AXP.N), Coca-Cola Co (KO.N), Procter & Gamble Co (PG.N) and Wells Fargo & Co (WFC.N).
The company's book value was $119.9 billion on September 30 versus $108.4 billion at year end.
"The balance sheet is an absolute fortress, with $120 billion of shareholder equity and very little debt," Armstrong said. "With big banks like Citigroup, Merrill Lynch MER.N and Bear Stearns BSC.N having balance sheet problems, when you look at Berkshire, it's like night and day."
