Warren Buffett-led Berkshire Hathaway Inc.'s second-quarter
profit slumped 37% due to a decline in investment gains and an
underwriting loss attributable to higher claims costs at auto
insurer Geico.
Berkshire's operating profit, which excludes the impact of some
investment results, fell 10% to $3.89 billion, or $2,367 per share
from $4.33 billion, or $2,634 a share a year ago, missing analysts'
estimates.
For the second quarter, Berkshire reported a net $123 million
gain from investments and derivatives, down from $2.06 billion a
year ago when it recorded a one-time gain tied to a stock-swap deal
with Graham Holding Co., former publisher of the Washington Post
newspaper.
Berkshire is a gigantic holding company that owns both operating
companies and stocks. It swung to an underwriting loss of $38
million in its core insurance business during the second quarter,
compared with a $411 million gain in the year-ago quarter. At
Geico, the country's second-largest auto insurer, pretax
underwriting gains shrank to $53 million from $393 million from a
year ago, mainly because it paid out higher claims more frequently
– a trend the company also referred to during the first
quarter.
Berkshire's Geico seemed buffeted by the same economic and
car-industry trends that hit Allstate Corp. and American
International Group Inc. during the second quarter: a rising number
of claims and a higher cost per claim. Industry executives and
analysts cite an improving economy and lower gas prices, and
more-complicated cars, loaded with electronics.
Berkshire Hathaway Reinsurance Group, another of Berkshire's
large insurance operations that insures against large disasters,
saw an underwriting loss of $411 million stemming from a storm loss
in Australia as well as foreign currency transaction losses.
Berkshire has said it faces increasing competition in the market
for property and casualty coverage.
Investment income, which includes dividends and interest on
investments made by Berkshire's insurance operations, fell by 11%
from 2014 due to declines in dividends earned from Berkshire's
stock holdings and interest on other investments.
Revenue at its BNSF railroad fell 6% to $5.4 billion partly
because freight volumes fell as the demand for moving energy
products fell, but pretax earnings rose 4% to $1.5 billion as the
unit improved operational performance.
Berkshire's book value, a measure of net worth, rose 2.4% to
$149,735 per Class A share for the first six months of the year.
Meanwhile, Berkshire's "float," the money Mr. Buffett and his
deputies get to invest from the company's insurance operations,
rose to about $85.1 billion as of June 30.
Berkshire's net profit was $4.01 billion, or $2,442 Class A
share, compared with $6.4 billion, or $3,889 a share, a year
earlier.
Maria Armental contributed to the article.
Write to Anupreeta Das at anupreeta.das@wsj.com
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