Berkshire Hathaway's BNSF Reports Drop in Quarterly Profit -- Update

By Maria Armental 

Cheap natural gas and a drop in shipments drove down first-quarter results at Burlington Northern Santa Fe, the largest unit of Warren Buffett's Berkshire Hathaway Inc. conglomerate.

Mr. Buffett, who last Saturday played up his love for the unit as he released Berkshire's preliminary first-quarter results at the company's annual shareholders meeting, warned that results at the railroad operator would remain subpar for the rest of the year due to lower coal volumes largely tied to power plants' shift to cheaper natural gas.

In the first quarter, BNSF's revenue fell 15% to $4.77 billion from the year-ago period as shipping volume fell 5.5%, Berkshire said Friday. Net profit dropped 25% to $784 million.

The bulk of the revenue decline came from coal freight shipments, down 39% to $779 million, driven by a 33% volume decline.

Coal accounted for about 22% of the unit's freight revenue in 2015.

Meanwhile, freight revenue from industrial products fell 18% while consumer-products freight revenue rose 3%, reflecting a 9% increase in volume.

Operating expenses for BNSF fell 12%, largely due to lower fuel prices.

Railroad operators, including Union Pacific Corp. and Canadian National Railway Co., Canada's largest, have reported similar declines in freight volumes tied to slumping commodity prices.

BNSF is part of the so-called Powerhouse Six, Berkshire's most profitable non-insurance businesses, which this year was expanded to include Precision Castparts Corp.

While cheaper oil largely benefits many of Berkshire's manufacturing businesses, the current oil-price slump and global commodity rout lowered sales of the conglomerate's industrial-products manufacturers. Still, Berkshire ended the quarter with a 33% increase in industrial-products revenue, largely due to the Precision Castparts acquisition.

At Berkshire's core is an insurance business, which brings in billions of dollars of float, which is the upfront premiums customers pay. Since that money doesn't have to be paid out until much later, Berkshire is able to invest it for its own benefit.

Berkshire's insurance float was approximately $89 billion as of March 31.

Earnings at Berkshire's insurance business fell 55% to $213 million for the quarter, driven mainly by lower results at its reinsurance group.

Overall, Berkshire reported $52.40 billion in revenue for the first three months of the year, up 8% from the year-ago period.

Book value, a measure of assets minus liabilities that is Mr. Buffett's preferred yardstick for measuring net worth, rose 1.2% since the end of 2015 to $157,369 per Class A equivalent share as of March 31.

Last Saturday, Berkshire reported quarterly net profit rose 8% to $5.59 billion, or $3,401 a Class A share, while operating profit, which excludes some investment results, fell 12% to $3.74 billion, or $2,274 a share.

Class A shares closed Friday at $216,999.9, up 0.2% over the past 12 months.

Berkshire also disclosed that one of its foreign subsidiaries had business dealings with customers in Iran from June 2013 through November 2015. The subsidiary, Berkshire said, had since stopped all shipments to those customers and the company said it had disclosed Friday the dealings to the U.S. government. Berkshire said it's investigating the matter with the assistance of outside counsel.

--Anupreeta Das contributed to this article.

Write to Maria Armental at [e-mail]

(END) Dow Jones Newswires

May 06, 2016 17:49 ET (21:49 GMT)

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