Berkshire profit climbs 32%, but falls at BNSF

Berkshire Hathaway, the conglomerate controlled by billionaire Warren Buffett, said fourth-quarter profit climbed 32 percent on investments and earnings from the company’s expanding stable of operating businesses.

Net income rose to $5.48 billion, or $3,333 a share, from $4.16 billion, or $2,529, a year earlier, the company said Saturday in a statement. Operating earnings, which exclude some investment results, were $2,843 a share, beating the average $2,814 estimate of three analysts surveyed by Bloomberg.

The results cap another record year for Buffett, Berkshire’s chairman and chief executive officer. Over the past five decades, he has built the Omaha, Nebraska-based company into a sprawling enterprise with a stock portfolio valued at more than $110 billion and interests in insurance, energy, manufacturing, media, retail and transportation.

While Berkshire’s insurance and investment results fluctuate widely, the company owns dozens of businesses that churn out steadier earnings. In recent years, profit from these units — including railroad BNSF and a collection of electric utilities — has become a bigger portion of the bottom line because of Buffett’s relentless dealmaking.

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Berkshire bought a network of U.S. car dealerships in 2015, and also struck one of its biggest deals ever: the $37.2 billion buyout of aerospace manufacturer Precision Castparts . That transaction was completed after the fourth quarter. Buffett’s company said Saturday that it also expects to complete the acquisition of the Duracell battery business from Procter & Gamble this month.

“We are getting a decent return on the capital we have deployed” for manufacturing businesses, a category that includes chemical company Lubrizol and toolmaker Iscar, Buffett said in his annual letter Saturday. “Earnings from the group should grow substantially in 2016 as Duracell and Precision Castparts enter the fold.”

Last year highlighted some of the challenges Buffett, 85, faces keeping his money-making machine moving forward. Even as he agreed to buy Precision Castparts and made billions on an investment in the food industry, some of Buffett’s major stock holdings slumped. Berkshire’s own shares ended 2015 down 12 percent, compared with the 0.7 percent fall in the Standard & Poor’s 500 index.

Since the start of 2016, however, Berkshire has outperformed. Shares were up 0.2 percent through Friday to $198,191, compared with the 4.7 percent slide in the equity benchmark.

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Full-year net income rose to $24.1 billion from $19.9 billion in 2014, which had been a record. The 2015 result was fueled by a third-quarter investment gain in Kraft Heinz Co.

Book value, a measure of assets minus liabilities, rose to $155,501 per share at Dec. 31 from $151,083 three months earlier and $146,186 at the end of 2014. That growth outpaced the gain in the S&P 500. Buffett’s stock picks and takeovers have helped build the figure more than 7,900-fold since he took control of Berkshire in 1965.

The insurance businesses had a fourth-quarter underwriting gain of $306 million driven by improvements at General Re and BH Reinsurance. That compares with a gain of $191 million a year earlier. Geico posted an $11 million underwriting loss in the quarter, as the auto insurer has been pressured by higher claims costs. Some fourth-quarter results were calculated by subtracting figures for the first nine months from the full-year data provided Saturday.

Profit at Berkshire’s biggest unit, BNSF, fell 9.2 percent to $1.08 billion, pressured by lower demand for coal. Volumes may fall this year as low fuel prices limit shipments of petroleum products and material used for extracting oil, the company said.

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The utility segment, Berkshire Hathaway Energy, contributed $423 million, an increase of 18 percent from a year earlier. The business operates electric grids in the U.K., natural gas pipelines that stretch from the Great Lakes to Texas and power companies in states including Iowa and Nevada.

Profit from Berkshire’s businesses and investments continued to pile up. Cash increased 8.3 percent from the end of the third quarter to $71.7 billion on Dec. 31. Buffett spent $32 billion in early 2016 to complete his acquisition of Precision Castparts, a deal in which he also assumed about $5 billion of debt.

The stock portfolio was valued at $112.3 billion at the end of the year, up from $110.3 billion on Sept. 30. Some of Buffett’s large holdings have come under pressure recently. International Business Machines trades for less than he paid to amass the stake in 2011. American Express has plunged over the past year. The billionaire has been adding shares of Phillips 66.

Buffett and his deputy investment managers, Todd Combs and Ted Weschler, spent $1.41 billion on equities and $2.82 billion on fixed-maturity securities in the quarter. Berkshire sold about $3 billion in stock and $1.38 billion of bonds during the period.

Berkshire had a gain of $805 million on derivatives and investments in the fourth quarter, compared with a gain of $192 million a year earlier. Some of the derivative contracts benefited recently because of a strengthening U.S. dollar.

The manufacturing, service and retail segment added $1.07 billion to earnings, compared with $1.05 billion a year earlier.

Berkshire has about 361,270 employees, up 6.1 percent from the prior annual report. The biggest additions were tied to the acquisitions of Precision Castparts and the car dealership business formerly known as Van Tuyl.