Berkshire Profit Rises 9.6% to $4.99 Billion on Insurance

Net income climbed to $4.99 billion, or $3,035 a share, from $4.55 billion, or $2,757, a year earlier

INN Breaking News, March 3, 2014

Noah Buhayar and Zachary Tracer

(Bloomberg) -- Warren Buffett’s Berkshire Hathaway Inc. said fourth-quarter profit rose 9.6 percent on gains at insurance units.

Net income climbed to $4.99 billion, or $3,035 a share, from $4.55 billion, or $2,757, a year earlier, Omaha, Nebraska-based Berkshire said today in a statement. Operating earnings were $2,297 per share, beating the $2,204 average estimate of three analysts surveyed by Bloomberg.

For decades, Buffett has used premiums from insurance subsidiaries like Geico to fuel Berkshire’s growth. The funds have allowed the billionaire chairman and chief executive officer to amass the largest equity stakes in companies such as Coca-Cola Co., while also taking over whole businesses. Berkshire now has dozens of operating units spanning the energy, transportation, manufacturing and retail industries.

“All the businesses are doing pretty well,” Cliff Gallant, an analyst at Nomura Holdings Inc., said in a phone interview before today’s announcement. “They’re all leveraged to a good U.S. economy.”

The insurance segment posted a quarterly underwriting profit of $394 million, compared with a loss of $19 million a year earlier. The premiums held by those businesses before paying claims, known as float, was little changed from the end of September at about $77 billion. The fourth quarter of 2012 included claims from superstorm Sandy, which struck the U.S. East Coast.

Record Profit

For the full year, Berkshire’s profit was $19.5 billion, eclipsing the 2012 record annual profit of $14.8 billion. Buffett’s cash hoard stood at $48.2 billion on Dec. 31, compared with $42.1 billion at the end of September.

“On the operating front, just about everything turned out well for us last year,” Buffett wrote in today’s letter to shareholders.

Burlington Northern Santa Fe railroad, which Buffett bought in 2010, contributed $1.12 billion to quarterly earnings, compared with $932 million a year earlier. Energy utility owner MidAmerican added $325 million to Berkshire’s profit, compared with $294 million a year earlier.

Buffett counts the railroad and energy company among his “powerhouse five” of non-insurancebusinesses. The group, which also includes manufacturing units, posted $10.8 billion in pretax earnings last year. That figure will probably increase by about $1 billion in 2014, Buffett said today.

Book Value

Book value, a measure of assets minus liabilities, rose in the quarter to $134,973 a share from $126,766 at the end of September, falling short of Buffett’s long-term goal. The billionaire has said he tries to increase the measure by more than the Standard & Poor’s 500 Index including dividends.

He had managed that feat in every five-year period from 1965, when he took control of Berkshire, through 2012. The equity benchmark’s rally since the depths of the financial crisis helped put an end to that run.

Earnings from manufacturing, service and retailing units increased to $4.23 billion last year from $3.7 billion in 2012. The group of businesses includes engine-additive maker Lubrizol; Marmon Holdings, a manufacturer of construction materials; and Fruit of the Loom, which produces underwear and other clothing.

The Class A stock has slipped 2.4 percent since Dec. 31, compared with the 0.6 percent gain for the S&P 500. Coke, one of Buffett’s largest stock holdings, has fallen this year as the soft-drink maker faces sluggish growth abroad and concerns about the healthiness of its product.

Combs, Weschler

Berkshire’s equity portfolio was valued at $117.5 billion on Dec. 31, up from $87.7 billion at the end of 2012. Buffett expanded the company’s stock holdings last year with a wager on Exxon Mobil Corp. and by exercising warrants that he received through 2008 capital injections in Goldman Sachs Group Inc. and General Electric Co.

His deputies, Todd Combs and Ted Weschler, also added investments last year. Their picks outperformed Buffett’s, the billionaire said, and also exceeded the gains of the S&P 500.

Berkshire spent $8.56 billion on equities and $7.55 billion on fixed-maturity securities in 2013. The company sold $3.87 billion of stock, down from $8.09 billion in 2012. Sales of bonds totaled $4.31 billion last year.

Investment gains more than doubled to $880 million, while contributions from derivatives narrowed. Contracts tied to corporate issuers expired last year, and the remaining portfolio of debt protection is written on municipal issuers, according to today’s filing.

Capital Spending

Some fourth-quarter results were calculated by subtracting figures for the first nine months from the full-year data provided today.

Buffett has highlighted capital spending at the railroad and utility as an example of how Berkshire is investing in the U.S. The two units along with other subsidiaries increased their outlay to $11.1 billion last year from $9.8 billion in 2012.

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