Big freeze hits Berkshire profits
Warren Buffett, chairman and chief executive officer of Berkshire Hathaway Inc., speaks during a conversation with Brian Moynihan, president and chief executive officer of Bank of America Corp., not pictured, at Georgetown University in Washington, D.C., U.S., on Thursday, Sept. 19, 2013. Buffett compared the U.S. Federal Reserve to a hedge fund because of the central bank's ability to profit from bond purchases as it accumulated a balance sheet of more than $3 trillion. Photographer: Andrew Harrer/Bloomberg *** Local Caption *** Warren Buffett©Bloomberg
Warren Buffett’s Berkshire Hathaway became the latest company citing the terrible winter among the reasons for a decline in profits in the first quarter, in results released on the eve of its shareholder meeting.
Frigid conditions in the US Midwest caused delays and disruption in shipping cargo by rail, hurting Mr Buffett’s railroad subsidiary, Burlington Northern, the company said on Friday.
Taken together with a decline in profits at Berkshire’s historic reinsurance business and a negative change in the market value of derivatives contracts, it reported a 4 per cent slide in earnings per share.
That did not stop the company’s cash pile swelling by another $1bn to $49bn – giving Mr Buffett yet more firepower for the big acquisitions he says he is still hunting.
The question of whether Berkshire can still find investment opportunities big enough to significantly improve earnings will be on the agenda at Saturday’s annual meeting, where some 38,000 shareholders are expected to converge on the Centurylink Center in downtown Omaha.
Mr Buffett’s preferred measure of investment success for Berkshire, increase in book value, has lagged behind the S&P 500 for more than the past five years. However, it increased 2.6 per cent in the first quarter of the year, according to the latest results, compared to a 1.8 per cent rise in the S&P 500 including dividends.
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Burlington Northern, which Mr Buffett bought for $34bn in 2010, recorded net earnings in the quarter of $724m, down from $798m a year ago, but the company said it expected to rebound to post earnings growth for the year overall.
Partially offsetting the declines in Burlington Northern, the winter weather did boost Berkshire’s utility MidAmerican Energy, as heating demand drove up energy use.
In an interview on CNBC earlier in the day, Mr Buffett said he was not surprised by this week’s weaker-than-expected 0.1 per cent reading on first-quarter GDP in the US.
“We saw in January and February things fairly slow, which certainly in some cases was attributable to weather, in our own case . . . If you have two months out of the three where things really seem to be pretty stagnant, the three months aren’t going to be that good.”
He said the economy had picked up to its end-2013 pace since.
Berkshire’s insurance businesses, where results can be volatile, also recorded declines in the first quarter in both underwriting income and investment returns, while equity derivatives contracts subtracted $132m from earnings in the quarter after having contributed $1.2bn a year ago. Overall, Berkshire’s net income fell to $4.7bn, from $4.9bn a year ago.
Mr Buffett’s operating companies span railways, insurance, energy utilities, retailers, newspapers and diverse industrial businesses, and their growing value has helped spur a rally in Berkshire shares this year. Early on Friday they touched a new record high, but closed down 0.6 per cent at $192,255 per A share, valuing the company at $317bn. The results were released after the market close.