Berkshire's Net Earnings Fall
Updated from 11/05/2010
Updated to include Berkshire's net earnings for the third quarter and clarify that net earnings fell even though operating earnings rose.
NEW YORK (
) --
Berkshire Hathaway
(BRK.B) - Get Report
reported third-quarter net earnings of $2.99 billion, down 7.7% from $3.24 billion a year ago.
Operating earnings, which omit several items including the bottom-line impact from the company's derivatives investments, were $2.79 billion, a sequential decline from the second quarter but a favorable comparison to 2009's third quarter, when operating earnings were just over $2 billion.
While
would be the last person in the world to recommend reading too much into one quarter's performance, investors look for several keys in terms of the ongoing performance of Berkshire Hathaway and its operating subsidiaries: book value, insurance float, gain or loss in derivatives, insurance performance and performance in the consumer-driven wholly-owned subsidiaries that suffered mightily during the recession.
>>Berkshire Hathaway: 4 Keys to Buffett Earnings
Berkshire Hathaway's book value increased by 7.5% in the third quarter after increasing 2.6% in the second quarter.
Berkshire Hathaway's insurance float increased by $3 billion too, to $66 billion at the end of the third quarter.
After a second quarter during which derivatives contracts lost $1.4 billion, which garnered a lot of headlines, derivative losses were just $95 million in the third quarter for Berkshire.
The insurance earnings ballast in the portfolio decreased quarter over quarter, and was down in the year-over-year comparison, too.
Last quarter, insurance was roughly half of Berkshire earnings, but it was significantly down in the third quarter as a percentage of overall earnings. Non-insurance earned close to $1.8 billion, whereas insurance was at the $1 billion mark in the third quarter.
Insurance underwriting earned $199 million in the quarter, vs. $462 million in the second quarter. Underwriting income had tripled through the first two quarters of the year, compared to 2009.
Insurance investments earned $873 million in the third quarter, vs. $1.1 billion in the previous quarter. Insurance investment income was slightly down in the first two quarters of 2010, compared to last year.
Last quarter has already marked a big comeback for the non-insurance business, which in the second quarter of 2009 had been at half the level of the earnings it generated in the 2010 second quarter.
The businesses highlighted from the noninsurance group in the third quarter were again Burlington Northern and NetJets, as had been the case in the second quarter.
The outsized impact of Burlington Northern earnings has only been in the Berkshire quarterly reports for the second and third quarter 2010, making year-over-year comparisons arguably less valuable. The $1.8 billion in noninsurance earnings compared to $759 million of earnings in the third quarter last year.
Berkshire Hathaway operating earnings for the third quarter increased 35.6% vs. 2009. Burlington was the major contributor, adding $1.59 billion to net earnings since its acquisition in February, including $706 million during the third quarter. Burlington had earned $603 million in the second quarter.
NetJets swung from a pretax loss of $531 million in the first nine months of 2009 to a pretax profit of $158 million in 2010. NetJets' business was at a pretax profit of $114.5 million at the end of the second quarter of 2010.
-- Written by Eric Rosenbaum in New York.
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