Friday Berkshire Hathaway Inc. (NYSE:BRK.A; BRK.B) reported a $3.6 billion first-quarter profit, helped by a huge one-time holding gain related to its acquisition of Burlington Northern Santa Fe as well as higher income from insurance underwriting and non-insurance related businesses. Berkshire completed the remaining acquisition of 77.5% of Burlington Northern on February 12th that it did not already own for aggregate consideration of $26.5 billion; which consisted of cash totaling $15.9 billion with the remaining balance paid in Berkshire common stock. About half of the cash component was funded with existing cash balances and the remaining was funded with proceeds from new debt issued by Berkshire Hathaway. As of that date, Burlington’s results and net earnings are fully assimilated into Berkshire’s consolidated results and net earnings. Burlington contributed $2.07 billion in revenue and $282 million in net income to Berkshire’s results for the first quarter 2010. The company’s operating earnings per share easily beat Wall Street expectations.
The Omaha, Nebraska-based company reported net earnings for the first quarter of $3.63 billion or $2,272 per Class A share, compared to a net loss of $1.53 billion or $990 per Class A share for the year-ago quarter. This quarter’s net income was Berkshire’s fourth straight of profit and largest since they reported $4.55 billion net income in the third quarter of 2007.
Berkshire had $1.41 billion of net gains from investments and derivatives in the first quarter, which included a one-time holding gain of $979 million related to the company’s acquisition of Burlington Northern Santa Fe. First quarter last year, the company recorded net investment and derivative losses of $3.24 billion. Excluding investment and derivative gains and losses, operating earnings for the first quarter were $2.22 billion or $1,390 per Class A share, compared to $1.71 billion or $1,100 per Class A share in the prior year quarter. Total revenue for the first quarter rose over 40% to $32.04 billion up from $22.78 billion in the same quarter last year. Insurance underwriting generated operating earnings of $226 million in the first quarter, up 12% from $202 million in the same quarter last year. Berkshire’s insurance group includes GEICO.
First quarter operating earnings from the company’s non-insurance businesses almost doubled to $1.05 billion from $529 million a year ago. Also during the first quarter, the company’s book value increased by 5.8% to $89374 per Class A equivalent share. Berkshire Hathaway, which is now a component of the S&P 500 index, is a holding company which owns subsidiaries that engage in several diverse business activities including property and casualty insurance and reinsurance, utilities and energy, finance, manufacturing, services, retailing and railroads. The company has over 80 units and businesses as varied as insurance, restaurants, furniture, clothing, candy companies, natural gas and corporate jet leasing. Berkshire Hathaway also holds significant stakes in well known companies such as Coca-Cola Co. (KO), Wells Fargo & Co. (WFC), Kraft Foods Inc. (KFT), American Express Co. (AEP) and Procter & Gamble Co. (PG) among others.
Recent turmoil in the market has overshadowed the positive news for Berkshire, as well as a somewhat puzzling drop in price for both the A and B shares. Strong results bode well for the company going forward as the economy improves.
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Disclosure: No position in BRK.A or B
