Buffett's firm explains US$3.6b profit

Berkshire Hathaway has said it benefited from an improving economy and investment gains related to its acquisition of BNSF railroad in the first quarter as it rebounded from last year's loss to deliver US$3.6 billion ($5 billion) in net income.

On Friday Berkshire said it earned US$2272 per Class A share during the quarter. That's after last year's loss of US$1.5 billion, or US$990 a share, as it wrote down the value of its ConocoPhillips investment.

Chairman and chief executive Warren Buffett discussed the highlights of Berkshire Hathaway's quarterly earnings at last Saturday's shareholders' meeting but didn't release detailed information about the quarter until Friday.

The four analysts surveyed by Thomson Reuters expected Berkshire to report earnings per share of US$1101.83 on average.

Berkshire officials don't typically comment on earnings reports and they didn't immediately respond to a message on Friday.

Berkshire's revenue grew to US$32 billion in the first quarter from last year's US$22.8 billion. The addition of Burlington Northern Santa Fe railroad helped boost its net income in two ways.

It adjusted the value of its BNSF holdings after completing the acquisition in February for a US$979 million paper gain. It held 76.8 million shares of BNSF stock before the deal.

Burlington Northern also added US$282 million net income for Berkshire between the day the acquisition closed on February 12 and the day the quarter ended on March 31.

Buffett has said the quarterly results showed the economy was improving because Berkshire's manufacturing and retail income grew 85 per cent to US$477 million.

Justin Fuller, who is a partner with Midway Capital Research & Management in Chicago, said Berkshire's results should be encouraging for people worried about the economy.

"As goes the United States, goes Berkshire. It's just become a much more economically sensitive company than it used to be," said Fuller, who writes about Berkshire online at www.buffettologist.com.

Berkshire's utilities and insurance companies, which include Geico and General Reinsurance, delivered solid results that improved slightly over last year. Insurance underwriting profit increased to US$226 million from last year's US$202 million.

Berkshire's utilities, led by MidAmerican Energy, added US$223 million net income, up from US$203 million a year ago.

Morningstar analyst Bill Bergman said Berkshire's operating businesses were definitely improving, but there was still room to grow because the businesses tied to housing, such as Shaw carpet, Acme brick and Benjamin Moore paint, have yet to see much increase.

"They're not hitting on all cylinders, but they're hitting on a lot more of them these days," Bergman said.

Berkshire's report suggests that it sold some of its stake in Procter & Gamble during the quarter to help raise cash for the US$26.7 billion BNSF acquisition.

Berkshire said the cost basis for its Procter & Gamble shares fell to US$4.5 billion at the end of March from US$5 billion at the end of last year.

But even after the BNSF deal, Berkshire finished the quarter with US$25.7 billion cash on hand. That's slightly higher than the US$25.6 billion it held at the same time last year and less than the US$30.6 billion Berkshire held at the start of this year.

Last year's quarterly loss included a US$1.9 billion charge from writing down Berkshire's ConocoPhillips investment, and a largely unrealised US$986 million paper loss on its derivatives portfolio.

This year's first-quarter results included a US$267 million gain on the value of Berkshire's derivatives.

Berkshire executives say the company's operating earnings are a better measure of how the company is performing in any given period because those figures exclude its derivatives and investment gains or losses.

Berkshire said its operating earnings increased to US$2.2 billion in this year's first quarter, up from last year's US$1.7 billion.

- AP