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Berkshire Hathaway's third-quarter profit climbs 72%

Warren Buffett's investment firm says net income rose to $3.9 billion from $2.28 billion a year earlier.

November 02, 2012|Bloomberg News

Warren Buffett's Berkshire Hathaway Inc. said profit climbed 72% in the third quarter as a stock market rally helped improve results in the derivatives book and earnings at the railroad climbed.

Net income rose to $3.9 billion, or $2,373 a share, from $2.28 billion, or $1,380, a year earlier, the Omaha company said Friday. Operating earnings, which exclude some investment results, were $2,057 a share, missing the $2,063 average estimate of analysts surveyed by Bloomberg.

Buffett, 82, made the equity derivatives bets in the last decade to wager on long-term gains in stock market indexes in the U.S., Europe and Japan. When the benchmarks rise, as some of them did in the third quarter, Berkshire's liabilities on the contracts can fall, increasing earnings. Buffett's firm has also benefited by investing the premiums it will hold until the contracts mature.

Berkshire's Class A shares fell less than 1% to close at $130,550 on Friday. The shares have advanced 14% this year, compared with the 12% gain in the Standard & Poor's 500 index.

Buffett, Berkshire's chief executive, chairman and controlling shareholder, has been positioning his firm for a rebound in housing. The company added to its holdings of Wells Fargo & Co., the largest U.S. home lender, expanded its real estate brokerage and won an auction for the loan portfolio of bankrupt mortgage lender Residential Capital.

The billionaire said in July that the residential real estate market was improving, even as other parts of the economy flattened out. Among Berkshire's more than 70 operating units are businesses that make bricks, paint, insulation and manufactured homes.

Buffett and Berkshire Vice Chairman Charles Munger are preparing a new generation of leaders at the firm. Former hedge fund managers Todd Combs and Ted Weschler were hired to help oversee investments. They handle smaller equity purchases, while Buffett oversees larger holdings such as Coca-Cola Co. and IBM Corp.

The board has picked Buffett's successor as CEO, the billionaire said in his annual letter to shareholders this year, without identifying the person. His son Howard, a Berkshire director since 1993, could serve as non-executive chairman, Warren Buffett has said.

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