The Oracle Wins Again as Berkshire's (BRK.A) Profits Soar 51%
Last week was an interesting one for the Oracle of Omaha, Warren Buffett. Mr. Buffett, who has long avoided tech stocks, posted his first tweet on Twitter, simply stating "Warren is in the house." Meanwhile, his company, Berkshire Hathaway (BRK.A), reported astounding first quarter earnings that comfortably topped analyst estimates. For its first quarter, Berkshire earned $2,977 per Class A share, or $4.89 billion, a 51% increase from the $1,966 per share, or $3.25 billion, it earned in the prior year quarter.
Operating profit soared 42% to $3.78 billion, or $2,302 per share, up from the $1,615 per share, or $2.67 billion, it earned last year. Revenue rose 15% to $43.87 billion. Daily Chart
Berkshire attributed its robust quarterly results to strong growth from its insurance businesses, other businesses, and gains from investments and derivatives. For many investors, Berkshire is considered to be a mutual fund run by Buffett, instead of an individual stock. Berkshire Hathaway's portfolio consists of over 80 businesses, many of them broad macro plays that are directly benefiting from the recovering economy. Prime examples include Burlington Northern (BNI
) railroad, McLane food distribution and Forest River recreational vehicles. Profit at one of Berkshire's insurance unit, Geico, nearly doubled from $845 million to $1.7 billion. By comparison, operating profit at Berkshire's non-insurance businesses only rose 12% to $2.25 billion. Two companies' gains especially stood out - MidAmerican Energy and Burlington Northern, which posted profit gains of 17% and 14%, respectively. Berkshire also owns other major blue chip stocks such as Coca-Cola (KO
), International Business Machines (IBM
) and Wells Fargo (WFC
). Berkshire's book value rose 5.5% to $120,525 per Class A share, giving it a price-to-book ratio of 1.43 at the time of this writing. The company's cash and equivalents rose to $49.09 billion, up from $46.99 billion. $12.1 billion of that cash is being used to finance its joint acquisition of H.J. Heinz with Brazilian investment firm 3G Capital. Gains from investment and derivatives nearly doubled to $1.11 billion, with much of those gains attributed to Berkshire's warrants for General Electric (GE
) and Goldman Sachs (GS
), which Berkshire invested in at the nadir of the financial crisis. On this front, Buffett is a contradictory character - although he was the first major investor to call derivatives "financial weapons of mass destruction" prior to the 2009 crash, he has also been one of the biggest and most successful derivatives traders in history. Individual investors should be careful of directly following Berkshire's portfolio moves, however. Buffett no longer oversees the individual stock picks of the portfolio; rather, those investments are mostly managed by Berkshire executives Todd Combs and Ted Weschler. Buffett's occasional moves in recent years have been focused on acquiring companies whole, such as Burlington Northern, or taking advantage of extreme pessimism in big blue chips, such as General Electric, to force highly favorable deals. Berkshire Hathaway (Class A), at over $160,000 per share, is still the most expensive U.S.-listed stock on the market today. If you don't have that kind of cash lying around for a single investment, non-voting Class B shares cost a more reasonable $108 per share. Other News About BRK.A Insurance Gains Help Push Profit at Berkshire Hathaway Up Nearly 51 %
Buffett's big bets on insurance pay off. Berkshire Hathaway's Earnings Jump 51%
Berkshire's top and bottom lines soar. Other Stocks in the News 3 Stocks for the U.S. Housing Boom
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Published on May 10, 2013
By Leo Sun