Kraft Gain Boosts Berkshire

   (FROM THE WALL STREET JOURNAL 11/7/15) 
   By Anupreeta Das 

Berkshire Hathaway Inc. more than doubled its third-quarter profit on an investment gain tied to its ownership stake in Kraft Heinz Co., overshadowing weakness in its core insurance underwriting business where profit dropped.

The Warren Buffett-led company's operating profit fell 3.7%, driven partly by lower income at its insurance underwriting business, which includes Geico Corp., the country's second-largest auto insurer. Operating profit excludes the impact of investment results such as the Kraft Heinz gain.

Underwriting profit at its insurance division fell 34% to $414 million from a year ago. Geico reported a lower underwriting gain as it paid out more in claims. This year, Geico has seen the frequency of customer claims go up in all of its major coverage areas, including property damage and collision coverage. The severity of claims also rose, Berkshire said.

The results mirrored those at Geico rival Allstate Corp., which said earlier this week that its auto underwriting income fell during the third quarter because claims continued to increase. Allstate and Geico are among insurers that have raised prices in response.

Meanwhile, dividend and interest income from investments made by its insurance companies rose during the quarter, helping offset the underwriting results.

Berkshire owns dividend-paying preferred stock in companies such as Bank of America Corp. and Burger King owner Restaurant Brands International Inc.

In addition, it has a stock portfolio of more than $110 billion, and its common-stock holdings include International Business Machines Corp. and Wells Fargo & Co.

Berkshire suffered big paper losses during the third quarter on its IBM position. Last month, the software and services giant said its revenue fell 14% during the quarter and gave a weaker earnings outlook. In its third-quarter report, Berkshire said it incurred a $2 billion book loss tied to its IBM stake, which was valued at $11.7 billion as of Sept. 30. It said it has no plans to sell its IBM shares and expects that the investment will eventually recover. Of Berkshire's 10 top stock holdings, according to regulatory filings, only two have increased in value over the past 12 months, Wells Fargo and General Motors Co.

The company's book value, a measure of net worth, rose 3.3% to $151,083 a Class A share for the first nine months of the year, compared with a 7.1% increase in the year-ago period.

Mr. Buffett has said he prefers to drive Berkshire's growth by acquiring new businesses rather than investing in stocks or relying on its insurance operations. It already pulls in income from a railroad, utilities, industrial and apparel manufacturers, home builders and even an auto dealership. Operating profit from these noninsurance businesses rose 5.2% to $3.4 billion.

In August, Berkshire struck its biggest-ever deal -- the $32 billion takeover of aerospace parts supplier Precision Castparts Corp. That deal is expected to close next year.

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(END) Dow Jones Newswires

November 07, 2015 02:47 ET (07:47 GMT)

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