Berkshire Profits on Sale of PetroChina Stake
Berkshire Profit Surges 64 Percent on Sale of PetroChina Stake
By Josh P. Hamilton
Nov. 3 (Bloomberg) -- Billionaire investor Warren Buffett's Berkshire Hathaway Inc. said third-quarter profit surged 64 percent as it reaped an eightfold gain on a stake in PetroChina Co.
Net income rose to $4.55 billion as investment gains increased more than tenfold to $1.99 billion after taxes, the Omaha, Nebraska-based company said yesterday in a regulatory filing. Berkshire began selling its 2.34 billion PetroChina shares as oil prices rose to records in the quarter.
Buffett, 77, is investing outside the U.S. to spur growth at his $200 billion investment and holding company as profit from insurance businesses wanes and the dollar weakens. Israel- based subsidiary Iscar Metalworking Cos., acquired for $4 billion last year in Buffett's first purchase of a non-U.S. company, also boosted results. PetroChina rose more than eightfold since Berkshire's $488 million investment in 2003.
``I don't think anybody's ever made much money betting against Warren Buffett and Berkshire Hathaway,'' said Frank Betz, who helps manage $800 million, including Berkshire shares, at Carret Zane Capital Management in Warren, New Jersey. ``His investment in China was the big brass ring that he grabbed in this period.''
Excluding investment gains, Berkshire's profit fell 1.4 percent to $2.56 billion, or $1,655 a share. Gary Ransom, an analyst at Fox-Pitt Kelton Cochran Caronia Waller had forecast $1,477 a share because of the expected drop in insurance earnings, Berkshire's biggest business. Ransom rates the stock ``in-line.''
$60 Billion For Purchases
Buffett, ranked the world's third-richest man by Forbes magazine, transformed Berkshire from a failing textile maker into an enterprise with businesses ranging from ice cream and underwear to corporate jet leasing. He has another $60 billion for purchases, and said as recently as last week that he's ``still negative'' on the dollar and likes to get ``foreign- exchange exposure through stocks.''
``I'm looking all over the world,'' Buffett said at an Oct. 24 press conference at an Iscar factory in Dalian, China. Berkshire rose $1,250, or 1 percent Friday, to end the week at $132,500 in New York Stock Exchange composite trading, up 20 percent this year. Earnings were released after the close of U.S. exchanges yesterday.
Dividends and interest from stocks and bonds and other investments by Berkshire's insurance companies rose 21 percent to $922 million after taxes. The company typically gets about half its profit from insurance.
Reinsurance, Geico
Underwriting profit from units including National Indemnity Co. and Geico Corp. tumbled 47 percent to $486 million. Buffett has told investors not to expect a repeat of the $3.8 billion in insurance earnings in 2006 when the company charged record rates a year after Hurricane Katrina. Falling prices after a calm 2006 hurricane season led Berkshire to scale back catastrophe coverage this year.
Berkshire Hathaway Reinsurance Group, which includes the catastrophe reinsurance business of National Indemnity, earned $183 million before taxes, down 75 percent. Reinsurers share in the premiums and claims of insurance companies.
Willis Group Holdings Ltd., the world's fourth-largest reinsurance broker, estimates that the cost of property reinsurance as of July 1 declined 15 percent to 20 percent on average from a year earlier.
Profit from selling policies at car insurer Geico Corp. fell 18 percent to $335 million before taxes as claims costs rose and the company increased its advertising budget. Geico spent 88.8 cents of every premium dollar on claims and expenses, compared with 85.6 cents a year earlier.
Geico added 536,000 new policyholders since the end of 2006, cutting prices to compete with companies including Progressive Corp., which also reduced rates to customers that it reaches over the phone and Internet.
Accident Rates
Until this year, U.S. auto insurers have been able to cut prices and still increase profit because of a steady decline in accident claims. Now, the trend is reversing, with Geico joining Allstate Corp. and Travelers Cos. in saying an increase in accidents is causing claims costs to rise.
Earnings from Berkshire's energy and utilities unit climbed 36 percent to $354 million, led by Portland, Oregon-based PacifiCorp, where revenue advanced on rate increases approved by regulators and higher customer usage.
A slowdown in U.S. homebuilding caused profit to fall 9.4 percent to $125 million at Shaw Industries, the world's largest carpet manufacturer, and lowered the earnings of Berkshire's other building products businesses.
``Residential housing construction is expected to remain low for the remainder of 2007 and into 2008,'' Berkshire said in its filing.
Sales of new homes were 23 percent lower in September than a year earlier, according to the U.S. Commerce Department.
The contribution from Iscar helped increase overall profit at Berkshire's manufacturing, service and retailing businesses by 21 percent to $647 million.
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