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Berkshire Hathaway NYSE:BRK-A Profit + 49% on Insurance, Derivatives

BRK-B

Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK-B) said fourth-quarter profit rose 49% as the conglomerate’s insurance units shrugged off SuperStorm Sandy and its massive derivative bets benefited from rising markets.

The Q-4 profit of $4.55-B, or $2,757 a share, compares to a profit of $3.05 -B, or $1,846 a share, in the same period a year earlier.

For the FY, profit rose 45% to $14.8%, according to the Berkshire annual report posted on the company’s website late Friday.

Q-4 operating profit of $1,704 per Class A share missed Wall Street’s expectation of $1,755 a share.

Operating profit excludes some investment results.
Mr. Buffett, who serves as the firm’s Chairman and CEO urged investors to evaluate Berkshire by how it is growing in relation to the broader market.

He often draws attention to Berkshire’s book value, a measure of assets and liabilities that he says understates the company’s actual value but can serve as an objective indicator of the company’s performance over time.

Berkshire’s book value increased 14% in 2012, falling short of the benchmark Standard & Poor’s 500 Index’s 16% return. It marks the 3rd time in 4 ys that Berkshire’s book value increased less than the return of the S&P, and Mr. Buffett himself termed the year “Subpar” in his widely read annual letter to shareholders Friday
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Mr. Buffett long has appreciated the insurance business because he can invest customer premiums until funds are needed to pay claims, sometimes using the money for years before the claims come due.

Mr. Buffett calls these funds “float,” and he reported Friday that the pool of funds rose to about $73-B from $70.6-B a year earlier. Investment income from the insurance operations was $805-M, a 2.4% decrease from the fourth quarter of 2011.

A good portion of the quarter’s increase in net income came from a corner of the company that Mr. Buffett has advised shareholders to ignore: Berkshire’s derivatives portfolio.

The largest portion of the portfolio is a series of equity-index puts, with a notional value of $33-B, that are tied to the performance of four stock indexes reflecting the performance of markets in Europe, Asia and the US

Three of the indexes rose in Q-4, and gains on equity-index Puts were $1.53-B. In Q-4 of Y 2011 those gains were $302-M.

But gains and losses there are an accounting matter until the contracts expire beginning in Y 2018.
Profit at Berkshire’s railroad operation, Burlington Northern Santa Fe, rose 2.5% to $932-M in the Quarter.

Profits decreased 6.9% to $294 million at Berkshire’s utility and energy operation.
Earnings at the company’s manufacturing, service and retailing units fell 3.1% to $829-M. The unit includes Marmon, a mini-conglomerate of its own that Mr. Buffett acquired from the Pritzker family in Y 2007, and Lubrizol Corp., a chemical company that was folded into Berkshire in Y 2011.

Berkshire’s cash hoard was $47-B at 31 December, down from $47.8-B at the end of Qq-3. At the end of 2011, the figure stood at $37.3-B.

LTNs Analysis for BRK.A: Overall Short Intermediate Long
Bullish (0.48) Bullish (0.40) Very Bullish (0.50) Very Bullish (0.54)

LTNs Analysis for BRK.B Overall Short Intermediate Long
Bullish (0.43) Bullish (0.31) Very Bullish (0.65) Bullish (0.33