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Berkshire Hathaway results disappoint on insurance losses

A cyclone more than 9,000 miles away from Omaha, Nebraska, where more than 30,000 Berkshire Hathaway shareholders are gathered for an annual meeting they call the Woodstock of Capitalism, has put a slight damper on the festivities.

Profits at Warren Buffett’s company fell 27 per cent in the first quarter to $4.06bn, or $2,469 per share, as the company’s insurance business paid out millions for claims related to a cyclone in Australia in March and from higher-than-expected damages linked to catastrophes last year.

Analysts surveyed by Thomson Reuters forecast that the company would report net income of $4.37bn, or $2,655 per share.

Losses in part of Berkshire’s insurance unit masked an improvement across the rest of the company’s vast portfolio of companies, including the BNSF railroad, where profits climbed 7 per cent from a year earlier.

One of Mr Buffett’s preferred measures of long-term performance, book value for Class A shares, rose 3.5 per cent in the quarter from the end of 2016 to $178,073 a share. Shares of the conglomerate — whose market value is more than $400bn — have trailed the broader S&P 500 this year, advancing 2.4 per cent. On Friday the A shares closed at precisely $250,000 apiece.

Jay Gelb, an analyst with Barclays, said that while the results were shy of his expectations, Berkshire remained “well-positioned in our view to benefit from an improving economy, higher short-term interest rates, and potential future accretive acquisitions.”

Berkshire had more than $105bn in so-called float, insurance premiums the company has been paid before settling claims — money which has been instrumental to its decades-long expansion, since Mr Buffett has used it to fund an array of public-market investments and acquisitions. The float climbed $14bn from the end of 2016, driven largely by a $10.2bn cash payment from American International Group, after Berkshire subsidiary National Indemnity Company agreed to shoulder some of the insurer’s potential risks.

Overall, cash and short-term US Treasury bills on the company’s balance sheet climbed to a record $96.5bn. Mr Gelb estimated Berkshire had more than $75bn of cash that could be immediately deployed for a takeover.

The sprawling empire Berkshire has amassed, which took its roots from a textile company established in the 1800s, now includes the likes of Dairy Queen, NetJets, Geico, Fruit of the Loom, Duracell, Lubrizol and a collection of US utilities under the Berkshire Hathaway Energy brand.

Via FT