Berkshire profit more than doubles as insurers avoid major disasters

Omaha Warren Buffett's company said on Friday its first-quarter profit more than doubled because Berkshire Hathaway Inc's insurance units avoided major disaster losses and the paper value of its derivative contracts improved.

Berkshire said it generated $3.245 billion (Dh11.9 billion) in net income, or $1,966 per Class A share. That's up from last year's net income of $1.511 billion, or $917 per Class A share. The earnings report was released as thousands of Berkshire shareholders were gathering in Omaha for yesterday's annual meeting.

Last year's results were hurt by $1.1 billion in insurance losses from the Japanese earthquake and tsunami, Australian floods and the New Zealand earthquake.

The overall results fell short of what the four analysts surveyed by FactSet expected. They had forecast Berkshire would report earnings per Class A share of $2,297.50 on $39.154 billion in revenue.

Berkshire says its revenue grew 13 per cent to $38.1 billion from last year's $33.7 billion.

Berkshire's insurance division, which includes Geico and General Reinsurance, contributed $54 million to the Omaha-based company's profits. That was much better than last year's $821 million loss, but slower than past years. Two years ago, Berkshire reported a $226 million underwriting gain in the first quarter.

Expenses grow

Berkshire said Geico's expenses grew as it began to comply with new accounting standards for certain policies and losses were slightly higher.

Price competition remained tough in reinsurance, so Berkshire said its companies continued to refuse to write policies when they considered the premiums inadequate.

The Burlington Northern Santa Fe railroad contributed $701 million to Berkshire's net income, up from $607 million a year ago.

BNSF said it hauled three per cent more carloads in the first quarter of 2012 than it did last year. The railroad said growth in the number of consumer and industrial products it carried offset decreases in coal and agricultural goods.

Last year's acquisition of speciality chemical maker Lubrizol boosted Berkshire's manufacturing, retail and service unit. That diverse group of businesses added $854 million net income, up from $558 million a year ago. Several of Berkshire's manufacturing companies, such as Acme brick, Shaw carpeting and Benjamin Moore paint, make building products, so their performance continues to be hurt by the slow pace of housing construction.

Berkshire's utility unit, Mid American Energy, added $338 million, up from last year's $301 million.

Berkshire estimated that its derivative contracts were worth $650 million at the end of the first quarter, well ahead of last year when they were worth $176 million.

The swing in the value of Berkshire's derivatives contributed to an overall gain on investments and derivatives of $580 million. A year ago, Berkshire recorded an $82 million loss on its investments and derivatives.

The true value of the derivatives won't be clear for at least several years, because they don't mature until at least a decade from now on average. But Berkshire is required to estimate their value every time the company reports earnings.