Buffett's Berkshire Beats Analyst Estimates as Burlington Northern Shipments Grow

UPDATE: This article, originally published at 5:40 p.m. EDT Friday, May 1, has been updated throughout with information from a regulatory filing.

NEW YORK (TheStreet) -- Investors making their annual trip to Nebraska on Friday for Berkshire Hathaway's (BRK.A)  annual meeting had set the first-quarter performance bar high for CEO Warren Buffett, and he delivered.

Earnings of $2,583 a share, excluding some items, topped the average estimate of $2,330 from analysts in a survey by Thomson Reuters as sales in the railroad and insurance businesses improved. Net income climbed 9.8% to $5.16 billion, or $3,143 a share, from $4.7 billion, or $2,862, a year earlier, the Omaha, Nebraska-based company said in a statement. Revenue ticked up 4% to $50 billion.


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Earnings growth was led by the railroads, energy and utilities unit, where profit increased 25% to $1.5 billion. Burlington Northern, which Buffett acquired in 2010, saw earnings climb 44% to $1 billion as shipments of coal and agricultural products increased, according to a regulatory filing.

Overall, improvements to Burlington's equipment, expanded lines and new hiring helped drive gains in the quarter from a "substandard" performance in the first three months of 2014, Berkshire said in the filing.

Burlington, the second-largest U.S. freight railroad operator, boasts 51,500 miles of track in 28 states, with operations in three Canadian provinces. It had 48,000 employees at the end of 2014.

Some analysts were concerned that margins would tighten at Burlington, as the company invested more on its rail lines, according to Meyer Shields, a managing director at Keefe, Bruyette & Woods. That proved to be exactly what happened.

"Burlington acknowledged that they'd been under-investing, which is a fixable problem, but will require more spending," he said.

Still, the railroad's margins remained healthy, as operating expenses increased only 10% to $1.3 billion.

In Berkshire's insurance businesses, revenue climbed 5.7% to $35.9 billion, despite an increase in claims at auto-insurer GEICO as cheaper gas prices put more customers on the road and severe winter weather caused them to have accidents. The company's ratio of losses incurred to premiums earned, a measure of an insurance business's performance, widened 4.3 percentage points to 80.1%.

"Low gas prices means more miles driven, which translates into more accidents and claims," Shields said.

The 10% gain in premiums at GEICO to $5.9 billion was heavily eroded by a 17% increase in insurance payouts and related expenses, which widened to $4.3 billion, according to Berkshire's filing. Notwithstanding, GEICO's operating income increased by 10% to $5.4 billion.

"We experienced increases in claims frequencies and severities in several of our major coverages," Berkshire said in the filing. "As a result, we are implementing premium rate increases as needed.

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