Hailstorms dent Berkshire profits
Hailstorms across parts of Europe over the summer put a dent in profits at Warren Buffett’s conglomerate Berkshire Hathaway. The company’s reinsurance businesses posted earnings for the third quarter that disappointed analysts, and highlighted their sensitivity to extreme weather and other catastrophes. The series of hailstorms and floods in Europe have caused a cumulative loss of $425m, Berkshire Hathaway said on Friday, contributing to the company’s overall earnings per share missing analyst expectations. Berkshire Hathaway cautioned that reinsurance profits were volatile from quarter to quarter. The reinsurance market is where traditional insurers sell parts of the risk that they have covered. Weak results from Berkshire Hathaway Re and General Re, Mr Buffett’s two reinsurance businesses, come at a time of weakening reinsurance premiums in some markets. "In some markets competition is increasing and pricing could be coming under pressure," said Tom Lewandowski, analyst at Edward Jones, "and that may be why we are seeing results come in a bit weaker than expected, but the business is lumpy and difficult to predict." Berkshire Hathaway’s insurance divisions, which include the traditional insurer Geico, recorded third-quarter earnings of $1.34bn, down from $1.58bn in the same period last year. However, the company’s overall results were buoyed by $1.39bn in gains on derivatives contracts, whose fluctuating market value has to be recorded in the accounts even though the contracts do not mature for several years. Net earnings were $5.05bn, up from $3.92bn in the third quarter of 2012, representing an 8.3 per cent increase in operating earnings per share. Operating EPS of $2,228 compared to the consensus of analysts’ estimates of $2,402. There were improvements elsewhere across the sprawling conglomerate, which Mr Buffett has assembled since taking control of the company in 1965. Burlington Northern, which operates one of North America’s largest railroads, earned $1.55bn in the quarter, up from $1.51bn thanks to increased demand for transporting coal. The demand for coal has risen as alternative natural gas has become more expensive. There were also better than expected results from manufacturing and retail businesses, and from Clayton Homes, its manufacturer of mobile homes, which doubled profits. Marmon, the manufacturing subsidiary, agreed last month to pay $1.1bn in cash for two units of IMI, the UK engineering group, including its drinks dispenser division that supplies Coca-Cola, PepsiCo and McDonald’s. Berkshire Hathaway shares have traded sideways since July, but are up 29 per cent this year. They fell 0.4 per cent in after-hours trading on Friday, following publication of results.