Berkshire Hathaway Sees Falling Profits

berkWarren Buffett?s Berkshire Hathaway Inc. posted second-quarter profit that missed analysts? estimates because of higher claims costs at insurance units including Geico.

Net income dropped 37 percent to $4.01 billion, or $2,442 a share, from $6.4 billion, or $3,889, a year earlier, the Omaha, Nebraska-based company said Friday in a statement. Operating earnings, which exclude some investment results, were $2,367 a share, compared with the average $3,038 estimate of three analysts surveyed by Bloomberg.

Buffett, 84, built Berkshire over the past five decades into a sprawling operation that owns manufacturers, retailers, electric utilities and one of the largest U.S. railroads. While those operating businesses provide a steady stream of earnings, the company?s results can still fluctuate depending on the performance of investments and its core insurance operations.

?The property-and-casualty insurance industry certainly occasionally takes large hits,? said David Kass, a professor at the University of Maryland?s Robert H. Smith School of Business. ?What matters is how you do over time.?

Berkshire?s insurance units posted a net underwriting loss of $38 million, compared with a gain of $411 million a year earlier, driven by lower profit at auto insurer Geico and a wider loss at the company?s namesake reinsurance operation, run by Ajit Jain.

Australia Storm

Geico contributed $53 million to earnings, compared with $393 million a year earlier because of an increase in the frequency and cost of claims. The company reiterated in a regulatory filing that it?s raising premiums to account for the higher losses.

Berkshire Hathaway Reinsurance Group?s loss widened to $411 million from $9 million on storm costs in Australia and foreign currency fluctuations.

The decline in net income was primarily driven by narrower investment gains. Berkshire?s profit soared to a record in last year?s second quarter as the company had a benefit of more than $2 billion from derivatives and investments.

The 2014 total included a one-time contribution from a share-and-asset swap with Graham Holdings Co., the former publisher of the Washington Post. In this year?s second quarter, the investment and derivative figure was $123 million.

Kraft Heinz

Buffett?s company said that third-quarter results will include a pretax gain of about $7 billion tied to the merger that formed Kraft Heinz Co. in July. Berkshire owns more than a quarter of the combined company after helping to fund the deal.

The anticipated gain hasn?t reversed Berkshire?s stock slump this year. Class A shares have slipped 4.7 percent since Dec. 31, trailing the 0.9 percent gain in the Standard & Poor?s 500 Index.

Buffett?s favored yardstick — book value — rose 1.9 percent to about $149,735 a share during the second quarter. He has said the metric is a good, though understated, proxy for the company?s true worth. Investors often use the figure to gauge whether the stock is attractively priced.

Railroad, Utilities

Berkshire?s biggest non-insurance unit, railroad BNSF, contributed $963 million to quarterly earnings, compared with $916 million a year earlier. Total carloads were relatively flat, and the revenue per car dropped as demand for hauling oil and coal slumped.

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