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Buffett's Railroad Profit Falls to Lowest Since 2014 on Coal (1)

Image: Buffett's Railroad Profit Falls to Lowest Since 2014 on Coal (1)

Berkshire Hathaway chairman Warren Buffett walks by a mock BNSF railroad engine at the Berkshire Hathaway annual meeting in Omaha May 1, 2010. (Reuters/Rick Wilking)

Sunday, 08 May 2016 10:20 AM

(Bloomberg) -- Berkshire Hathaway Inc. said quarterly profit from its railroad fell 25 percent to the lowest level in two years, contributing to the drop in operating earnings at Warren Buffett’s company.

First-quarter net income at BNSF Railway declined to $784 million from $1.05 billion a year earlier, according to a regulatory filing Friday. Berkshire’s overall net income climbed 8.2 percent to $5.59 billion as investment gains outweighed the slump at the railroad and insurance operations. That figure was disclosed April 30 when Buffett released a brief summary of results at his annual meeting in Omaha, Nebraska.

Buffett bought BNSF in 2010, and the railroad immediately became one of Berkshire’s top sources of earnings. Profit gained for years, in part because of improved exploration techniques for oil that was near the railroad’s tracks in North Dakota. More recently, BNSF has been cutting staff after low oil prices and a nationwide shift away from coal have depressed demand for shipping.

“It’s a terrific and valuable asset, and it will earn a lot of money this year, but it won’t earn as much money as it earned last year,” Buffett said of the railroad at the April 30 meeting. “All of the major railroads were down significantly in the first quarter and probably will continue to be down, almost certainly will continue to be down the balance of the year.”

Berkshire’s earnings per share rose to $3,401 from $3,143. Operating profit fell 12 percent to $3.74 billion, a figure that was disclosed at the meeting.

Reinsurance, Utilities

Berkshire’s namesake reinsurance group, led by Ajit Jain, posted a pretax underwriting loss of $79 million, compared with a profit of $459 million a year earlier. A portion of the decline was due to how it estimates losses for business sold in prior years. Results improved at Geico and General Re.

The utility segment, Berkshire Hathaway Energy, contributed $441 million, a 4.8 percent increase from a year earlier. The business operates electric grids in the U.K., natural gas pipelines that stretch from the Great Lakes to Texas and power companies in states including Iowa and Nevada.

The cash pile decreased to $58.3 billion on March 31 from $71.7 billion at the end of the fourth quarter. In January, Buffett completed one of his biggest deals ever: a $32.7 billion buyout of manufacturer Precision Castparts Corp.

Duracell Deal

Net income in the quarter was helped by a one-time gain on Procter & Gamble Co. stock. Buffett traded his long-held shares in the consumer-goods firm during the quarter for full ownership of P&G’s Duracell battery unit. The transaction increased earnings by $1.9 billion and is part of the reason the stock portfolio shrank to $106.4 billion on March 31, from $111.8 billion at the end of 2015.

Buffett and his deputy investment managers, Todd Combs and Ted Weschler, spent $3.1 billion on equities and $1.5 billion on fixed-maturity securities in the quarter. Berkshire sold about $2.3 billion in stock and got about $2.8 billion from the redemption and maturity of bonds during the period.

Book value, a measure of assets minus liabilities that many investors use to value the company, rose 1.2 percent to $157,369 per Class A share in the first three months of the year. The stock has climbed 9.7 percent this year as of 4 p.m. in New York, while the S&P 500 Index advanced less than 1 percent in the period. Results were released after the close of regular trading.

(Updates with results from operating units starting in the sixth paragraph.)

To contact the reporters on this story: Noah Buhayar in Seattle at nbuhayar@bloomberg.net, Emma Orr in New York at eorr6@bloomberg.net. To contact the editors responsible for this story: Dan Kraut at dkraut2@bloomberg.net, Dan Reichl

©2016 Bloomberg L.P.

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