Berkshire Hathaway's Profit Drops 37%

Warren Buffett-led Berkshire Hathaway Inc.'s second-quarter profit slumped 37% due to a decline in investment gains and an underwriting loss attributable to higher claims costs at auto insurer Geico.

Berkshire's operating profit, which excludes the impact of some investment results, fell 10% to $3.89 billion, or $2,367 per share from $4.33 billion, or $2,634 a share a year ago, missing analysts' estimates.

For the second quarter, Berkshire reported a net $123 million gain from investments and derivatives, down from $2.06 billion a year ago when it recorded a one-time gain tied to a stock-swap deal with Graham Holding Co., former publisher of the Washington Post newspaper.

Berkshire is a gigantic holding company that owns both operating companies and stocks. It swung to an underwriting loss of $38 million in its core insurance business during the second quarter, compared with a $411 million gain in the year-ago quarter. At Geico, the country's second-largest auto insurer, pretax underwriting gains shrank to $53 million from $393 million from a year ago, mainly because it paid out higher claims more frequently – a trend the company also referred to during the first quarter.

Berkshire's Geico seemed buffeted by the same economic and car-industry trends that hit Allstate Corp. and American International Group Inc. during the second quarter: a rising number of claims and a higher cost per claim. Industry executives and analysts cite an improving economy and lower gas prices, and more-complicated cars, loaded with electronics.

Berkshire Hathaway Reinsurance Group, another of Berkshire's large insurance operations that insures against large disasters, saw an underwriting loss of $411 million stemming from a storm loss in Australia as well as foreign currency transaction losses. Berkshire has said it faces increasing competition in the market for property and casualty coverage.

Investment income, which includes dividends and interest on investments made by Berkshire's insurance operations, fell by 11% from 2014 due to declines in dividends earned from Berkshire's stock holdings and interest on other investments.

Revenue at its BNSF railroad fell 6% to $5.4 billion partly because freight volumes fell as the demand for moving energy products fell, but pretax earnings rose 4% to $1.5 billion as the unit improved operational performance.

Berkshire's book value, a measure of net worth, rose 2.4% to $149,735 per Class A share for the first six months of the year. Meanwhile, Berkshire's "float," the money Mr. Buffett and his deputies get to invest from the company's insurance operations, rose to about $85.1 billion as of June 30.

Berkshire's net profit was $4.01 billion, or $2,442 Class A share, compared with $6.4 billion, or $3,889 a share, a year earlier.

Maria Armental contributed to the article.

Write to Anupreeta Das at [e-mail]

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