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Berkshire Hathaway profit falls 77%

mushroom

It's pronounced Doo-MAH
Joined
Aug 22, 2005
Posts
270
Total Time
>7000
Ow. As someone who wants to work at NetJets, let's hope for the economy to improve soon!


Berkshire Hathaway Profit Falls 77% to $1.06 Billion (Update2)
By Erik Holm and Linda Shen
Nov. 7 (Bloomberg) -- Billionaire Warren Buffett's Berkshire Hathaway Inc. posted a fourth straight profit drop, the longest streak of quarterly declines in at least 13 years, on falling returns at insurance businesses and investment losses.
Third-quarter net income decreased 77 percent to $1.06 billion, or $682 a share, from $4.55 billion, or $2,942, a year earlier, the Omaha, Nebraska-based company said today in a regulatory filing.
``It's not as good as it might have been, but neither was it as bad as it might have been,'' said Frank Betz, a partner at Carret Zane Capital Management, which holds Berkshire shares. Declining investments, catastrophe claims and falling property and casualty rates caused losses at 14 of the 23 companies in the KBW Insurance Index that reported third-quarter results so far.
Buffett, 78, is investing in nuclear power, chewing gum and Wall Street as results slump at Berkshire's insurance units and businesses tied to the U.S. housing market. He has committed at least $28 billion this year to acquire companies, finance buyouts and purchase securities as prices fall and competitors are hobbled by limited access to credit.
Berkshire, which owns National Indemnity Co., General Re Corp. and Geico Corp., said profit from underwriting insurance policies fell 83 percent to $81 million. Its reinsurance group, which sells catastrophe coverage to other insurers, posted a $166 million pretax loss for the quarter. Berkshire typically gets about half its revenue from insurance.
Derivative Losses
Decreases in the value of some holdings and derivatives lowered earnings by $1.01 billion in the period ended Sept. 30, compared with a $1.99 billion gain in the year-earlier quarter when Berkshire booked profits from selling a stake in energy firm PetroChina Inc.
October's declines in debt and equity markets reduced the value of Berkshire's investments and derivative contracts and caused shareholders' equity, a measure of assets minus liabilities, to fall by about $9 billion in the month, the company said in the regulatory filing.
``Berkshire management believes these extraordinary conditions are temporary, and that equity prices will ultimately rise over time,'' the filing said.
Losses from derivatives result in part from accounting rules related to bets Buffett made on four stock indexes, including the Standard & Poor's 500. If the indexes fall below contractually agreed-upon levels at expiration dates beginning in 2019 Berkshire will lose the bets.
Berkshire has collected $4.85 billion on the contracts and can profit from investing the funds, the firm said.
Investment Income
The investment loss ``doesn't look great,'' said Tom Russo, a partner at Gardner Russo & Gardner, which manages holdings including Berkshire shares. ``But shareholders should rejoice that he was able to obtain that capital to invest on such attractive terms for years before the chance comes that he'll have to pay anyone.''
Investment income at Berkshire's insurance units, including stock dividends, fell 12 percent to $809 million.
Profit from selling policies at car insurer Geico Corp. fell 27 percent to $246 million before taxes on claims costs from storms. The unit added about 119,000 new policyholders in the quarter.
U.S. Hurricanes
Hurricanes Ike and Gustav cost insurers a combined $10 billion when they struck the Gulf Coast in September, the most since the record $58.7 billion of claims in 2005 when Katrina struck, according to preliminary data from Insurance Services Office Inc.
Geico competitors including Northbrook, Illinois-based Allstate Corp., the largest publicly traded auto insurer, have said drivers are reporting fewer car crashes as gas prices topped $4 a gallon for regular unleaded in the third quarter. Americans have logged 67.2 billion fewer miles through August than last year, according to the Federal Highway Administration, which hasn't released September or October data.
Geico said today that its policyholders also reported fewer accidents through the first nine months of the year.
Buffett in the past two months agreed to spend $5 billion of Berkshire's cash for a stake in Goldman Sachs Group Inc., betting the Wall Street firm would be among the survivors of a worldwide credit crisis, and another $5 billion in preferred shares of General Electric Co.
Energy, Gum
He also agreed in July to lend $3 billion to Dow Chemical Co. to help fund that firm's takeover of Rohm & Haas Co., and committed $6.5 billion in April to help Mars Inc. buy chewing gum maker Wm. Wrigley Jr. Co. Berkshire's MidAmerican Energy Holdings Co. struck a deal in September to pay $4.7 billion for Constellation Energy Group Inc.
Berkshire shares, which rose in 17 of the last 20 years, are down 20 percent since Dec. 31 as some of the firm's largest stock investments slumped. American Express Co. has plunged 51 percent this year, Coca-Cola Co. dropped 25 percent and Procter & Gamble Co. declined 12 percent. All three were among Berkshire's 10 biggest stock holdings at the end of June.
Berkshire said its stock portfolio was worth $76 billion at the end of September, a 9.4 percent increase over three months. Buffett spent about $5.8 billion on fixed-maturity securities and $3.9 billion on equities in the quarter amid a worldwide credit squeeze and declining stock markets.
The worst housing slump since the Great Depression has hurt Berkshire's building-related companies, including Acme Brick, Benjamin Moore paints and Shaw Industries. Profit at Shaw, the world's largest carpet manufacturer, fell 61 percent to $49 million as sales to residential customers declined.
Furniture, Jewelry
Profit at furniture stores, jewelry shops and the candy business declined 67 percent to $11 million.
Earnings from Berkshire's energy and utilities unit, which includes MidAmerican Energy Holdings Co. and PacifiCorp, dropped 8.5 percent to $324 million as revenue from the U.K. fell amid the strengthening of the U.S. dollar.
Buffett built Berkshire over four decades from a failing textile maker into a $175 billion company by buying out-of-favor stocks and businesses whose management he deemed superior. Berkshire also owns underwear manufacturer Fruit of the Loom, ice cream chain Dairy Queen and NetJets, which sells fractional ownership of private planes.
To contact the reporters on this story: Erik Holm in New York at eholm2@bloomberg.net; Linda Shen in New York at lshen21@bloomberg.net
Last Updated: November 7, 2008 18:56 EST
 

rydog

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Third-quarter net income decreased 77 percent to $1.06 billion


Its down but a few months ago the oracle said the windfall profits from insurance were over. He did invest a couple Billion $$$ in GE and Goldman Sachs so im not worried yet. Im pretty sure there are a lot of companies that would love to be able to make a billion in profits in this economic environment.
 

gutshotdraw

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For people with a lot of cash (like Uncle Warren and Berkshire), this economy is a "half-off" sale. About two years ago, he said the toughest part of his job was trying to decide where to spend the ridiculous amount of cash that BH is sitting on because all the companies out there were overvalued. Not any more. And that's why he's spending 28 Billion on new investments. And that's why BH will show eye-popping profit numbers on the back end. I'm not worried about where Uncle Warren's next Cherry Coke is coming from.
 

AZ Typed

Hobby's Flyin
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Read the Essays of Warren Buffet - then you'll understand why Buffet and BH is a surefire safe bet, just about 100% of the time.

AZT
 

Buckeye

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So let me get this straight. PROFITS are down to pay out to shareholders, so PROFIT being down is bad? In this current economic state I think any PROFIT is good.
 
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