Warren Buffett's Berkshire Hathaway Inc (BRKa.N) posted a 29 percent jump in third-quarter profit as it recorded big gains on investments made during the financial crisis, but operating results missed forecasts amid weakness in insurance operations.
Quarterly results included $1.4 billion of gains from investments that Buffett made in October 2008, including in General Electric Co (GE.N) and Goldman Sachs Group Inc (GS.N) warrants, and bonds related to candy maker Mars Inc's purchase of rival Wrigley.
Such investments helped give Buffett a reputation as a lender of last resort.
But investment and derivative gains do not factor into operating results, and while profit rose at Berkshire's Burlington Northern Santa Fe railroad and MidAmerican energy and utility units, insurance underwriting results deteriorated.
Net income rose to $5.05 billion, or $3,074 per Class A share, from $3.92 billion, or $2,373 per share, a year earlier, Berkshire said on Friday.
Operating profit rose just 8 percent to $3.66 billion, or $2,228 per Class A share, from $3.4 billion, or $2,057 per share. Analysts on average expected $2,402 per share, according to Thomson Reuters I/B/E/S.
Michael Yoshikami, president of Destination Wealth Management in Walnut Creek, California, which invests $1.3 billion and owns Berkshire stock, said the company can boost investment results if bond yields rise once the U.S. Federal Reserve pulls back on efforts to prop up the nation's economy.
"The U.S. economy is rather stumbling, and that is positive actually for their infrastructure investments such as railroads," he said. "All things considered, we are fairly pleased with the results."
Book value, Buffett's preferred measure of the Omaha, Nebraska-based company's worth, rose 11 percent this year to $126,766 per Class A share as of September 30, 2013.
Net insurance underwriting premiums fell 57 percent to $170 million. Results weakened at the Geico auto insurance unit, which paid out a higher percentage of premiums to cover claims than a year earlier, and the General Re reinsurance unit, which had a $400 million underwriting loss from a European hailstorm.
In addition, Berkshire's main reinsurance business sustained a $206 million pre-tax underwriting loss, hurt by lower premiums and currency fluctuations.
Profit rose about 6 percent at Burlington Northern to $989 million, as higher shipments of industrial products, consumer products and coal offset a drop for agricultural products amid lower grain exports and strong global competition.
Results also improved in businesses such as the Forest River recreational vehicle unit. Revenue from jewelry, home furnishings and other retail businesses rose 18 percent.
Bill Smead, chief executive of Smead Capital Management in Seattle, which invests 3 percent of its $700 million of assets in Berkshire, said the 83-year-old Buffett is setting up the company to perform over the long haul.
"He's making a big push into almost everything associated with the idea that we'll build a lot more homes in the next 10 years," Smead said.
Berkshire ended the quarter with $42.08 billion of cash and equivalents, giving Buffett the firepower to make one or more large acquisitions, which he calls "elephants."
The second-richest American wants to keep about $20 billion in cash, in part for possible insurance payouts on storms.
Berkshire bought $1.77 billion worth of stock during the quarter but sold $1.48 billion, and was actually a bigger net purchaser of bonds than stocks.
Buffett has run Berkshire since 1965, favoring businesses with consistent earnings power. Berkshire now has more than 80 businesses, though it remains best known for insurance.
He spent $12.3 billion in June to buy part of ketchup maker H.J. Heinz Co. Berkshire also owns $104.9 billion in equities, including such stocks as Coca-Cola Co (KO.N), International Business Machines Corp (IBM.N) and Wells Fargo & Co (WFC.N).
In Friday trading, Berkshire Class A shares closed up $127.70 at $173,122.50, while its Class B shares rose 19 cents to $115.27. Berkshire released results after U.S. markets closed. Its B shares fell 0.7 percent to $114.51 after hours.
(Reporting by Jonathan Stempel, Jennifer Ablan and Luciana Lopez; Editing by James Dalgleish, Leslie Gevirtz, Andrew Hay and Bob Burgdorfer)