Berkshire Hathaway reports 70% jump in 1Q Earnings; Shareholders Meet in Omaha

By | May 7, 2006

Berkshire Hathaway Inc., billionaire Warren Buffett’s investment vehicle, reported a 70 percent jump in first-quarter earnings on strong performance from its investments and insurance businesses.

Berkshire’s net earnings were $2.3 billion, or $1,501 per share, for the three months ended March 31, compared with last year’s $1.4 billion, or $886 per share, according to Berkshire’s filing with the Securities and Exchange Commission released late Friday afternoon.

Berkshire earned $526 million on investments during the quarter, compared to a loss of $77 million a year ago.

Berkshire’s insurance companies, which include auto insurer GEICO and reinsurance giant General Re, reported earnings of $1.03 billion, up from $873 million last year. Those figures include earnings on both underwriting and investments the insurance companies made.

But most of that gain came from the sale of some investments, but Berkshire also made money on its bet the dollar would fall. Before taxes, Berkshire made $151 million on its short position on the U.S. currency; last year, the company lost $307 million on that investment.

During the quarter, Berkshire completed acquisitions of the utility PacifiCorp and press-release distributor Business Wire. Those deals helped boost revenue to $23.9 billion in the quarter, up from $20.5 billion a year ago.

PacifiCorp and higher electricity sales helped Berkshire’s utility businesses earned $233 million during the first quarter, up 65 percent from $141 million last year.

Buffett built a 1956 partnership of four relatives and three close friends into a holding company with total assets of $198.3 billion at the end of 2005. Berkshire owns furniture, insurance, jewelry and candy companies, restaurants, natural gas and corporate jet firms and has major investments in such companies as Coca-Cola Co., Anheuser-Busch Cos. and Wells Fargo & Co.

In the fourth quarter of 2005, Berkshire reported net income of $5.13 billion on revenue of $25.37 billion. The fourth-quarter figures were more than 50 percent higher than the same quarter a year ago, when Berkshire reported $3.34 billion in net earnings.

Berkshire announced two acquisitions, including one Friday, since Buffett released his annual letter to shareholders in March.

Berkshire said it will acquire an 80 percent stake in privately held Iscar Metalworking Cos., which makes metal cutting tools, in a deal that values Iscar at $5 billion. The company’s current owners, the Wertheimer family, will retain 20 percent ownership. Buffett said Saturday that Berkshire is paying $4 billion for its 80 percent.

Iscar is the first business based outside the United States that Berkshire has bought into, Buffett said, although it owns several companies with overseas operations.

Berkshire announced last month that it will pay $597.2 million for Russell Corp., which makes sweat shirts, workout clothes and sporting goods. That deal is expected to close in the third quarter of this year.

Convening in Omaha
Thousands of faithful followers faced billionaire Warren Buffett on Saturday at the Berkshire Hathaway Inc. annual meeting in Omaha, Neb., learning about the company’s latest acquisition but not getting much information about his chosen successor.

Buffett mentioned in his annual letter to shareholders in March that the company board had chosen the person who eventually will succeed him, but the company has not said who that might be.

During the six-hour gathering Buffett likes to call “Woodstock for capitalists,” vice chairman Charlie Munger said shareholders should have much more important things to worry about than whether the company will struggle after Buffett is gone.

Munger told the crowd of about 24,000 people that Buffett has done such a great job of establishing the Berkshire’s culture that there shouldn’t be problems.

Buffett, who has given no indication he plans to step down, said no formal training for the successor is necessary because the three Berkshire executives who he’s said would be capable chief executives are already part of the company’s culture. They already understand the importance of integrity, character and treating shareholders like partners, he said.

“The successors the board has in mind are very smart,” Buffett said. “They understand and have bought into the whole culture that we have.”

Buffett rejected one suggestion that he consider stepping down as chief executive and remaining as chairman to ease the transition. He said the company doesn’t need an operations person because Berkshire’s company’s mostly run themselves.

“We could have me do investments and an operating guy, but the truth is we don’t need an operating guy,” Buffett said.

Shareholders who have grown to expect big gains from their investment in Berkshire were eager to hear more about its latest acquisition and about plans that Buffett might have for the $42.9 billion cash the company held at the end of the first quarter, on March 31.

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