Paper gains on derivative contracts helped Berkshire Hathaway Inc. triple its third-quarter profit as its insurance businesses did well, but Warren Buffett's company said Friday that many of its other operating businesses struggled.
The Omaha-based company delivered relatively flat results made to appear spectacular by the unrealized investment gains. The strength of its insurance businesses like Geico offset weakness in those more tied to the economy, like NetJets and Berkshire's manufacturing businesses.
"I thought it was pretty much as predicted, but still in good, solid shape," said Andy Kilpatrick, the stockbroker-author of "Of Permanent Value, the Story of Warren Buffett."
Berkshire said it generated $3.2 billion, or $2,087 per share, in net income. That's up significantly from last year's $1.1 billion, or $682 per share. The results don't include Berkshire's headline-grabbing $26.3 billion acquisition of railroad operator Burlington Northern Santa Fe Corp., which was announced on Tuesday.
Most of the swing in Berkshire's earnings is related to an unrealized $1.1 billion gain on its derivatives, some of which are tied to credit defaults and some of which are tied to equity markets. That compares with an unrealized $819 million loss on Berkshire's derivatives in last year's third quarter.
Excluding the investment and derivative gains, Berkshire's operating earnings were nearly flat at $2.06 billion, or $1,325 per share. Last year, Berkshire reported operating earnings of $2.07 billion, or $1,335 per share.
The four analysts surveyed by Thomson Reuters expected Berkshire to report earnings per share of $1,308.25.
Berkshire executives typically do not comment on quarterly earnings reports, and they did not immediately respond to an interview request on Friday.
"Most of the businesses here remain pretty sluggish with a couple bright spots in insurance," said Justin Fuller, a partner with Midway Capital Research & Management in Chicago who writes about Berkshire online at http://www.buffettologist.com.
Operating profit in Berkshire's insurance underwriting business, which includes Geico and General Reinsurance, soared to $363 million from $81 million a year ago thanks partly to this year's relatively quiet hurricane season.
Berkshire's insurance units also reported better investment income of $976 million in the quarter, up from $809 million a year ago.
Berkshire's non-insurance companies, which includes Shaw carpet, Acme Brick, Nebraska Furniture Mart and NetJets, generated an operating profit of $774 million in the quarter, down from $1.1 billion a year ago.
NetJets said Thursday that it planned to lay off up to 495 pilots nationwide in January because of reduced demand for its jet service.
NetJets produced a pretax loss of $183 million in the quarter, which included $181 million in downsizing costs. Berkshire officials say more downsizing costs will be incurred in the fourth quarter because NetJets has more planes than it needs, but NetJets is expected to produce a modest profit in 2010.
The group of Berkshire manufacturing businesses that includes Acme Brick, Benjamin Moore paint, Forest River RVs and Iscar Metalworking delivered sharply lower net income because of the recession. Those businesses generated $293 million in the quarter, down from $478 million a year ago.
Berkshire's utility unit, MidAmerican Energy Holdings, contributed $346 million in net income to the company, up from $324 million a year ago. Those results improved slightly because of lower costs.
Companywide, Berkshire generated $29.9 billion revenue in the quarter, up from $27.9 billion a year ago.
Berkshire finished the third quarter with $26.9 billion in cash equivalents on hand, up from $24.5 billion at the end of the second quarter.
Through the first nine months of the year, Berkshire generated $5 billion, or $3,223 per share, in net income. That's up slightly from last year's nine-month profit of $4.9 billion, or $3,149 per share.
Berkshire owns more than 60 subsidiaries and it has major investments in such companies as Coca-Cola Co. and Wells Fargo & Co.
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Berkshire Hathaway Inc.: http://www.berkshirehathaway.com