By Andrew FryeFebruary 26, 2011, 8:32 AM EST
(Updates with Buffett comment in fourth paragraph, derivatives in the seventh, cash holdings in 12th.)
Feb. 26 (Bloomberg) -- Berkshire Hathaway Inc. said fourth- quarter profit rose 43 percent on derivative gains and earnings from the railroad that billionaire Chairman Warren Buffett bought last year.
Net income advanced to $4.38 billion, or $2,656 a share, from $3.06 billion, or $1,969, a year earlier, Omaha, Nebraska- based Berkshire said today in a regulatory filing.
Buffett acquired Burlington Northern Santa Fe for $26.5 billion to add the second-biggest U.S. railroad to Berkshire’s collection of insurance, energy and consumer-goods units. The 80-year-old chief executive officer issued stock and debt to fund the deal for Fort Worth, Texas-based Burlington. Economic expansion in the U.S. fueled profit gains at the freight-hauling unit in the first three quarters of 2010.
“The highlight of 2010 was our acquisition of Burlington Northern Santa Fe, a purchase that’s working out even better than I expected,” Buffett said in his letter to shareholders today.
Book value, a measure of assets minus liabilities, rose in the last three months of 2010 to $157.3 billion from $149.7 billion on Sept. 30 as earnings and stock advances boosted capital. The railroad contributed $1.03 billion in net earnings in the fourth quarter. The railroad had net income of $536 million in the fourth quarter of 2009 as an independent company.
“Kudos for that purchase, I was pretty skeptical at the beginning,” said Meyer Shields, an analyst with Stifel Nicolaus & Co. in an interview before the earnings were announced. “It was a good deal for him.”
The gain from equity index puts, in which Buffett bets on stock indexes, tripled to $2.49 billion as global markets advanced.
Berkshire Class A shares advanced 5.9 percent on the New York Stock Exchange this year, beating the 4.9 percent gain in the Standard & Poor’s 500 Index.
The profit increase halts Berkshire’s streak of consecutive quarterly earnings declines at two. Net income fell in the second and third quarters of 2010 as derivative bets soured. Buffett, Berkshire’s biggest shareholder, uses the contracts to speculate on the direction of equity markets and the solvency of corporate and municipal borrowers.
Railroad earnings surged last year as the economic pickup boosted demand for shipments of cars, coal and construction products. Union Pacific Corp., the largest U.S. railroad by 2009 revenue, posted a 41 percent fourth-quarter profit gain. Norfolk Southern Corp., the No. 4 railroad, hired 1,900 workers last year and will hire 1,500 more this year after business “outran our expectations,” CEO Charles Moorman said at a Feb. 15 conference.
Buffett built Berkshire into a $200 billion company through four decades of stock picks and takeovers. He manages portfolios of equities, bonds and derivatives and oversees the CEOs of more than 70 units including car insurer Geico, power producer MidAmerican Energy Holdings and Dairy Queen.
Buffett is seeking acquisitions as earnings and maturing investments boost Berkshire’s cash holdings. At the end of December, the company had $38.2 billion of cash, its highest total in more than two years. Buffett has said he’ll consider purchases outside the U.S. He visited China in September and planned trips to Japan and India for this year.
The cash hoard will grow with the termination of financing deals that Buffett struck during the credit crunch. Swiss Reinsurance Co. repaid about $3 billion in a deal that gave Berkshire annual interest of 12 percent. Goldman Sachs Group Inc. and General Electric Co. are weighing the return of $8 billion that Buffett agreed to inject in 2008 for securities paying 10 percent.
Buffett hired Todd Combs in the fourth quarter to help with investments at Berkshire. The company, whose vice chairman, Charles Munger, turned 87 in January, is preparing for the next generation of leaders.
--Editors: Dan Kraut, Dan Reichl.Share Investor LinksDownload the 1977 - 2010 Warren Buffett Letter's to Berkshire Hathaway Shareholders
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