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Buffett's Berkshire Earns $3.1 Billion, War Chest at $40 Billion

(Berkshire Hathaway earnings results updated with performance data for subsidiaries)

NEW YORK (TheStreet) -- Warren Buffett's Berkshire Hathaway (BRK.A) reported earnings of $3.1 billion in the second quarter, down from the year-ago period when the company earned $3.4 billion, though a "paper loss" in the value of derivative contracts is included in the financial results.

As a read on the U.S. economy, operating results improved in many of Berkshire's consumer-linked affiliates, as well as for most of its housing-related subsidiaries.

Based on Buffett's preferred metric of operating earnings, Berkshire's $3.7 billion in the second quarter was $1 billion above last year's same quarter results. The decline in the value of derivative contracts was over $1 billion.

Berkshire shareholders earned $1,882 per share in the second quarter based on net earnings, compared with $2,072 in the second quarter 2011. Using operating earnings, Berkshire shareholders received $2,252 per share in the second quarter, above the year-ago level of $1,640.

The results were in line with Wall Street expectations -- though for the record, only three analysts cover the stock -- with revenue of $38.6 billion exactly where it was expected, though the operating earnings per share were above the consensus of $1,776.

Cash declined from $47 billion in the second quarter of last year to $40 billion at the end of the first six months of 2012, though the company's $9 billion acquisition of Lubrizol closed this year, and cash remains higher than its 2012 beginning year level of $37 billion, making Buffett's acquisition hunt a continuing topic of interest for the market.

Analysts expected little change in the company's book value -- Buffett's preferred metric for evaluating performance over time. Book value rose to $177.4 billion from $176 billion at the end of the first quarter.

Berkshire Hathaway Class B shares climbed to a new 52-week high during trading on Friday, of $85.69, before closing at $85.58. Year-to-date -- even amid a volatile equities market that has gyrated on every word out of Europe -- Berkshire has gained 12%, slightly ahead of the S&P 500's year-to-date gain of 11%. Berkshire has failed to outperform the S&P 500 in recent years, a humbling performance stumble which Buffett has directly commented on, noting time and time again the difficulty in outperforming the index the larger his conglomerate becomes.

Quarterly results from Berkshire are not a stock-moving event. The typical profile of the Berkshire investor is that of a long-term holder -- if not acolyte of Buffett -- who discourages any focus on short-term financial performance. Berkshire's results are a good proxy, though, for the state of the U.S. economy, as Buffett's conglomerate spans the financial, railroad, energy, housing, consumer goods and food and beverage sectors, among others.

Berkshire's manufacturing, retail and services business saw across the board increases in revenue versus the prior year, though its grocery distribution business, McLane, experienced an earnings decline, due to manufacturer price increases. Overall, these consumer sensitive businesses saw an increase of more than $2.5 billion in revenue, and a pre-tax earnings increase of $236 million versus the year-ago period.

Signs of the rebound in the housing market were evident in the results. Acme Building Brands, Benjamin Moore (paint), Johns Manville (insulation), Shaw (carpets) and MiTek (roofing) were part of a manufacturing group that saw revenue increase 35% and earnings go higher by 56% versus the year ago period.

Buffett's most direct play on the housing market, home builder Clayton Homes, continues to show some softness. Clayton Homes' revenues in the second quarter increased $28 million (4%) over 2011, with revenue from home sales increasing $40 million (11%) in the second quarter, due primarily to increases in units sold partially offset by slightly lower average prices. Clayton Homes' pre-tax earnings increased $20 million (45%) in the second quarter, benefiting from increased unit sales.

Berkshire said Clayton Homes' operating results continue to be negatively affected by the ongoing soft housing markets and the surplus of traditional single family homes for sale. "Clayton Homes remains the largest manufactured housing business in the United States and we believe that it will continue to operate profitably, even under the prevailing conditions," Berkshire said in its earnings filing.

Burlington Northern revenue climbed from $4.8 billion to $5.1 billion, and its earnings were higher by $110 million versus the year-ago quarter. While shipment of consumer and industrial products was higher, the weakness in the coal market as natural gas continues to replace coal as a source for power generation offset gains made by Burlington in more cyclical industries.

Berkshire shares were higher by close to 1.5% in after hours trading on Friday, which represented a new 52-week high.

-- Written by Eric Rosenbaum from New York.

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-- Written by Eric Rosenbaum from New York.

>To contact the writer of this article, click here: Eric Rosenbaum.

>To follow the writer on Twitter, go to Eric Rosenbaum.

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