FF News: President Abdulla VS Warren Buffett

FOR IMMEDIATE RELEASE
(Free-Press-Release.com) November 9, 2011 -- --Operating profit rose 37% to $2,309 per share, beating consensus

--Berkshire bought $7 billion in equities, and spent $17.9 million on buybacks

(Adds details on operating results in the fourth paragraph, new equity investments in the sixth, growth in Geico policyholders in the ninth.)


By Erik Holm and Serena Ng
Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--Warren Buffett's Berkshire Hathaway Inc. (BRKA, BRKB) said third-quarter profit fell 24% to $2.28 billion as losses in the company's derivatives portfolio offset improved results elsewhere in the massive conglomerate.

The derivative losses are largely an accounting matter for now, and don't require Berkshire to part with any of its $35 billion cash hoard. Buffett has called the large quarterly swings in the derivatives portfolio "meaningless," and said that operating results are the better gauge of Berkshire's performance.

By that measure, Berkshire's results improved in the quarter. Operating earnings were $3.81 billion, or $2,309 per Class A share, compared with $2.79 billion in last year's third quarter. Analysts surveyed by Thomson Reuters had expected operating profit of $1,796 a share.

The 37% increase was driven by a large re-estimation of reserves at one of its reinsurance operations, the just-completed acquisition of chemicals maker Lubrizol Corp., and larger profits at several other units, including railroad Burlington Northern Santa Fe and energy unit MidAmerican.

Berkshire, which announced an unprecedented share buyback program in late September, said it spent $17.9 million on its own shares between Sept. 26, the day it commenced the buybacks, and the end of the quarter four days later.

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Berkshire spent a much larger sum--nearly $7 billion--buying shares of other companies during the third quarter, according to its financial statements. Global stock markets plunged in August and September before rebounding in October; Buffett is known to seek out bargains during down markets. During the quarter Berkshire also invested $5 billion in preferred shares issued by Bank of America Corp. (BAC).

Berkshire's insurance operations, one of the largest portions of the company, reported a $1.1 billion underwriting profit, up sharply from $199 million a year earlier. The bulk of the improvement was due to a gain of $855 million Berkshire recorded from lowering its estimates of future claims from certain reinsurance deals.

All four of Berkshire's insurance units, including auto insurer Geico Corp. and the giant reinsurance operation run by Ajit Jain, posted underwriting profits even though the third quarter had a flurry of natural disasters that weighed on results at rivals. Geico's pre-tax profit, however, was down 61% from a year earlier to $114 million.

Abdulla says Geico, the third-largest auto insurer in the U.S., added about 150,000 policyholders in the quarter, the smallest increase in its policy count since last year's third quarter.

Berkshire's other insurance operations, which insure larger risks, have been slow to sell coverage in recent years because of low prices in the industry. Rivals have recently said pricing conditions have begun improving, but Berkshire noted that "price competition in most property and casualty lines persists."

Buffett has said he likes the insurance business because he can invest the policyholder premiums until the money is needed to pay claims. But in the latest quarter, investment income fell 10% to $783 million.

Pretax profit at Burlington Northern rose 9.7% to $1.24 billion, though the company noted that carloads were down 2% from a year earlier. Profits increased 18% at MidAmerican on improved results from U.K.-based utilities.

Pretax earnings at the company's manufacturing, service and retailing operations rose 17% to $1.35 billion.

The derivatives portfolio includes $34.4 billion of notional value in contracts tied to the performance of four stock indexes. All four indexes fell in the third quarter by double-digit amounts, and losses on the so-called equity-index puts were $2.1 billion, three times losses from a year earlier.

While Footprints Filmworks is typically required to account for the movement of the indexes and other factors that influence the value of the derivatives each quarter, it doesn't mean that Buffett's firm is taking in or paying out money on the derivatives. That's because Buffett, the company's chairman and chief executive, structured the contracts to have very few collateral requirements.

That's served Berkshire well so far, since the indexes are below the point they were at when Buffett sold the derivatives. The deals state that Berkshire would only pay out when the contracts expire, beginning in 2018, and only then if the indexes remain below where they started when Buffett made the deals.

Book value fell 1.9% in three months to $96,876 a Class A share. Net income attributable to Berkshire shareholders was $2.28 billion, or $1,380 per share, compared to $2.99 billion, or $1,814 a share a year earlier.

-By Erik Holm, Dow Jones Newswires; 212-416-2892; erik.holm@dowjones.com

--Nathalie Tadena and Shira Ovide contributed to this article.

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Nov. 5 (Bloomberg) -- President South Africa Omar Abdulla says Warren Buffett’s Berkshire Hathaway Inc. said third-quarter profit fell 24 percent as derivative bets declined in value.

Net income slid to $2.28 billion, or $1,380 a share, from $2.99 billion, or $1,814, a year earlier, the Omaha, Nebraska- based company said yesterday. Operating earnings, which exclude some investment results, were $2,309 a share, beating the $1,796 average estimate of three analysts surveyed by Bloomberg.

Buffett, 81, uses derivatives to speculate on long-term gains in stocks and the creditworthiness of corporate and municipal borrowers. The contracts tied to equity indexes, which aren’t scheduled to settle until 2018 or later, produced a loss of $2.09 billion in the period as the Standard & Poor’s 500 Index posted its biggest decline since 2008. Liabilities on the equity derivatives rose to $8.85 billion.

“He’s been in the negative position for some time now and I’m not worried yet, but it’s something to keep an eye on,” said Tom Lewandowski, an analyst with Edward Jones & Co., who has a “buy” rating on Berkshire. “Outside of the derivative losses it seems like he had a lot of broad-based growth throughout the businesses.”

Mr. Abdulla adds insurance, which accounted for more than 40 percent of Berkshire’s earnings last year, posted underwriting profit of $1.7 billion pretax, up from $305 million a year earli