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Buffett's Berkshire Posts Q2 Profit Decline

The Warren Buffett optimists were out in full force on Friday ahead of the release of what turned out to be worse than expected June quarter earnings.

The price of the company’s A class shares set a record high on Friday, closing up $1,629.80 at $US270,000. That saw the company’s market cap end the week at $US444 billion.

The cheaper B class shares also hit a new high of $US179.92 on Friday - but dipped 1.5% in the after hours market while the A class shares rose 0.6%. The B class shares are up nearly 10.4% so far this year.

The A class shares rose 3% last week and are up nearly 11% for the year so far

Warren Buffett’s Berkshire Hathaway Inc on Friday reported a 15% drop in second-quarter profit, as lower investment gains and a loss from insurance underwriting offset improvement in its BNSF railroad business.

Net income fell to $US4.26 billion, from $US5 billion, a year earlier.

Operating earnings fell to $US4.12 billion, from $4.61 billion a year ago. Revenue rose to $US57.5 billion, from $US54.2 billion a year ago.

Analysts had expected sales of $US57.6 billion for the quarter.

Buffett believes operating income is a better measure of how Berkshire and its more than 90 businesses are doing than net income, which fluctuates more because it incorporates investment gains, which fell 51% from a year earlier.

Book value per share, Buffett’s preferred measure of growth, rose 2.7% from the end of March to $US182,816.

But Burlington Northern railroad saw a 24% jump in profit to $US958 million as manufacturers and retailers increased shipments and the carrier boosted its fuel surcharge.

Shipments of minerals, such as coal, steel and other supplies for domestic oil-drilling also climbed as oil prices stabilised from a year earlier.

That helped offset a second straight quarterly loss from insurance underwriting, totalling $US22 million compared with a year earlier $US337 million profit.

The weak performance was driven by a $US400 million loss in Berkshire Hathaway Reinsurance Group, which provides coverage for insurers worldwide and received unexpected claims related to hurricanes and earthquakes in 2016.

Berkshire said that weakness reflected losses from currency changes, as well as the amortisation of deferred charges from its January agreement to take on many long-term AIG property and casualty risks, in exchange for $US10.2 billion upfront.

That contract helped boost float, or the amount of insurance premiums collected before claims are paid and which help fund Berkshire’s growth, to $US107 billion from $US91 billion at year end, Berkshire said.

Buffett’s company reported a 1.3% drop in net income from investments through the insurance business, which reached $965 million in the three months to June 30.

The total value of Berkshire’s stock holdings is up 12% this year to $US135.4 billion, with the majority made up of holdings in five companies: an $US11.2 billion stake in credit-card giant American Express Co. ; a $US7.1 billion stake at iPhone-maker Apple; $US16.6 billion at Coca-Cola Co; $US13.5 billion at IBM and $US27.6 billion at Wells Fargo & Co. The June quarter details of Berkshire’s share market holdings will be issued around August 14.

Manufacturing earnings rose 15% to $US1.94 billion, partly due to higher revenue at aerospace-parts supplier Precision Castparts, which Buffett bought for $US32.7 billion in 2016.

View More Articles By Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.



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