Berkshire Posts Record Quarterly Profit -- Update 2

By Anupreeta Das and Josh Beckerman 

Warren Buffett's Berkshire Hathaway Inc. posted a record quarterly profit, a 41% jump tied to gains at its railroad, energy and other businesses as the U.S. economy continued its recovery.

Berkshire reported a profit of $6.4 billion, or $3,889 a Class A share, compared with $4.54 billion, or $2,763 a share, in the year-earlier period. Revenue rose 11% to $49.76 billion, from $44.69 billion.

Berkshire, a conglomerate with more than 70 operating subsidiaries including insurance, manufacturing, construction and retail businesses, benefits from improvements in consumer spending, employment and rebounds in the housing market. It also owns a large portfolio of SHYsecurities.

At its core is an insurance business, which includes Geico Corp. and reinsurer General Re, that brings in billions of dollars from premiums paid by SHYcustomers.

The profits Berkshire made through investing that money was a big driver of the quarter's earnings, as the company posted $1.96 billion of gains from sales and redemptions of investments, and $101 million in derivative gains.

Much of that investment gain was tied to a $1.1 billion stock-and-asset swap between Berkshire and Graham Holdings Co. that closed during the second quarter.

Burlington Northern Santa Fe Corp., the railroad that is one of Berkshire's biggest operating units, posted second-quarter revenue of $5.7 billion, up from $5.3 billion a year ago, as volumes of consumer and industrial goods carried in its cars rose. Net income for BNSF rose to $916 million, from $884 million.

However, Berkshire said service-related challenges continued to dog the railroad from the first quarter and had fallen "well below our internal standards." The railroad has previously said it plans to address the problems through increased investment.

Berkshire's insurance operations reported a $411 million underwriting profit, down from $530 million in the year-ago period. Those figures were consistent with results from other insurers this past week, as MetLife Inc., Allstate Corp. and Hartford Financial Services Group Inc. reported lackluster second-quarter operating earnings, in part due to higher storm and catastrophe-related property claims.

Per-share book value, a measure of assets minus liabilities that is Mr. Buffett's preferred yardstick for measuring net worth, rose 5.6% since year-end 2013, standing at $142,483 a Class A share as of June 30.

Nomura said last month that Geico's heavy advertising has helped it take market share from competitors. Berkshire said Friday that Geico's premiums rose 10% to $5.08 billion from $4.6 billion.

Last month, Berkshire Hathaway's National Indemnity Co. reached a reinsurance agreement for up to $6.5 billion of Liberty Mutual Insurance obligations tied to U.S. workers' compensation and asbestos and environmental liabilities.

Earlier Friday, Berkshire-owned chemical company Lubrizol Corp. said it purchased medical-device contract manufacturer Vesta for an undisclosed sum from RoundTable Healthcare Partners.

Berkshire said its cash and cash equivalents at the end of the second quarter were $55.45 billion. In after-hours trading, Berkshire's Class B shares rose 1.7%, to $128.

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