Berkshire Hathaway's profit soars 33%

Warren Buffett's insurance and investment company says earnings were lifted by higher insurance underwriting profit, investment income.

Warren Buffett's Berkshire Hathaway Inc said Friday second-quarter earnings rose 33 percent as higher insurance and utility profits offset pressure on housing-related businesses from the slowing U.S. real estate market.
Net income for the Omaha, Nebraska-based insurance and investment company rose to $3.12 billion, or $2,018 per Class A share, from $2.35 billion, or $1,522, a year earlier.
Operating profit, excluding investment gains, rose 22 percent to $2.51 billion, or $1,625 per share, from $2.05 billion, or $1,331.
Analysts on average had expected profit of $1,460 per share, according to Reuters Estimates.
Revenue rose 13 percent to $27.35 billion. Berkshire ended the quarter with $46.95 billion of cash, giving Buffett ammunition to make the big acquisition he says he wants.
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Insurance underwriting profit rose 70 percent to $632 million, and insurance investment income rose 10 percent to $862 million. Earnings from utilities and energy rose 46 percent to $231 million.
These helped offset declines in pre-tax profit of 34 percent at Shaw Industries, which makes carpeting and flooring, and 20 percent in furniture and transportation equipment leasing. Profit from manufactured housing rose 4 percent.
"Berkshire has substantial exposure to the housing and building cycle," said Thomas Russo, who helps invest $3 billion at Gardner, Russo & Gardner, of which 8 percent is in Berkshire stock.
"The beauty is that a unit like Shaw can decline without having investors question the overall value of Berkshire's long-term structure and capacity to weather the storm."
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Known as the Oracle of Omaha, Buffett has transformed Berkshire since 1965 from a failing textile company into a $168 billion conglomerate by acquiring out-of-favor companies with consistent earnings and capable management, and investing in stocks.
Berkshire's equity investments swelled 13 percent since March to $73.61 billion, while its fixed-income investments grew more - up 15 percent to $24.92 billion. These were before the recent stock market swoon, where investors have tried to reduce their perceived exposure to market risk.
"People are trying to play guessing games as to what equities he'll buy, and this is the kind of market Buffett waits for," Russo said. "But he could just as easily buy mortgage-backed securities - if other investors panic, that's the time extraordinary returns could be available."
Berkshire's Class A (Charts, Fortune 500) shares closed Friday down $100 at $109,990 and its Class B (Charts) shares rose $11 to $3,599. The Class A shares are little changed this year, while the Standard & Poor's 500 and insurance indexes are up 1 percent and down 9 percent, respectively.
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Insurance generated about half of Berkshire's profit. Underwriting gains before taxes at Geico Corp rose 13 percent, as the auto insurer boosted premiums 7 percent. Gains from underwriting more than doubled Berkshire's reinsurance group and its General Re Corp reinsurance unit.
Berkshire posted a $34 million gain from currency bets. Buffett once had a $21 billion bet against the dollar, but unwound most of it as he bought more non-U.S. companies and stocks. He said at Berkshire's May 5 annual shareholder meeting that he was betting on one currency that would "surprise you."
Berkshire owns more than 70 companies that make such things as paint, ice cream and underwear. It also invests in stocks including American Express Co (Charts, Fortune 500), Coca-Cola Co (Charts, Fortune 500) and Procter & Gamble Co. (Charts, Fortune 500) The company's book value was $115.27 billion on June 30 versus $108.42 billion at year end.