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(Bloomberg) — Berkshire Hathaway Inc. said fourth-quarter profit slipped 17 percent as investment gains narrowed and underwriting results deteriorated at insurance units.
Net income fell to $4.16 billion, or $2,529 per share, from $4.99 billion, or $3,035, a year earlier, Omaha, Nebraska-based Berkshire said Saturday in a statement on its website. Operating earnings of $2,412 per share missed the $2,702 estimate of three analysts surveyed by Bloomberg.
Buffett, 84, is aiming to make 2015 a celebratory year. He took control of Berkshire five decades ago and transformed it from a struggling textile maker into a sprawling business empire. Early on, he bought insurers, then used premiums from those businesses for stock picks and acquisitions. Operations now include electric utilities, manufacturers, retailers and one of the largest U.S. railroads. “The growth rate’s impressive,” Meyer Shields, an analyst at Keefe Bruyette & Woods, said in a phone interview before results were announced. “It’s a very successful, long-term utilization of the investable cash related to the insurance business, with no enormous mistakes.”
While investment results can cause volatility in earnings, Berkshire now derives most of its income from operating subsidiaries. Even as underwriting profit decreased 52 percent at the insurance units to $191 million, Berkshire’s dozens of other operations posted a 10 percent increase in earnings to $3.03 billion.

Annual Results

Full-year net income rose to $19.9 billion from $19.5 billion in 2013, which had been a record. Book value, a measure of assets minus liabilities, climbed to $146,186 per share at the end of December from $144,542 three months earlier. Underwriting results slipped in the fourth quarter at Geico and at Berkshire’s two main reinsurance businesses. Investment income at the insurance units also fell, dropping 2.7 percent to $880 million. Many units have benefited in recent quarters from a rebound in the U.S. economy. Gross domestic product expanded at a 2.2 percent annualized rate in the fourth quarter after gaining at a 5 percent pace in the three months ended Sept. 30. Berkshire’s biggest unit, railroad BNSF, contributed $1.19 billion to quarterly earnings, compared with $1.12 billion a year earlier. While Buffett said operations have improved in recent months, he lamented service delays tied to increasing volume and poor weather and wrote that “BNSF disappointed many of its customers.”

Electric Grids

Profit at the Berkshire Hathaway Energy unit rose to $358 million from $325 million a year earlier. The business operates electric grids in the U.K., natural gas pipelines that stretch from the Great Lakes to Texas and power companies in states including Iowa and Nevada. The December 2013 purchase of Nevada’s largest electric utility, NV Energy, bolstered results. Buffett often highlights the prospects for business in the U.S. Most of Berkshire’s units are based in the country, and the billionaire continues to buy more. Last year, he agreed to purchase Van Tuyl Group, a network of car dealerships, as well as battery-maker Duracell. He’s also been expanding in other nations. Berkshire acquired an electric transmission business in Alberta last year and said last week that it was purchasing Detlev Louis Motorradvertriebs GmbH, a motorcycle apparel and accessories retailer based in Hamburg, for about $450 million. In all, Buffett said Berkshire agreed to spend $7.8 billion on 31 bolt-on deals last year, with Duracell the largest. The cash pile increased to a record $63.3 billion on Dec. 31 from $62.4 billion three months earlier.

Stock Sales

As U.S. stocks advanced in the fourth quarter, Berkshire sold or redeemed more than $5 billion in equities, while purchasing about $2.6 billion. Berkshire disclosed earlier this month that it sold its entire stake in Exxon Mobil Corp. in the period amid plunging oil prices. Buffett paid about $3.7 billion for the shares in 2013. The company’s stock portfolio, led by holdings such as Wells Fargo & Co., Coca-Cola Co. and American Express Co., was valued at $117.5 billion at the end of 2014, down from $118.9 billion on Sept. 30. Some of Berkshire’s other stock picks have come under pressure recently. Buffett said Saturday that he’d waited too long to exit an investment in U.K. grocer Tesco Plc, which fell 43 percent last year.

GE, Goldman

Berkshire had a fourth-quarter gain on investments and derivatives of $192 million. That compares with $1.21 billion a year earlier. Berkshire benefited in 2013 from a $1.2 billion one-time gain on Buffett’s financial crisis-era investments in Goldman Sachs Group Inc. and General Electric Co. The manufacturing, service and retail segment, which includes toolmaker Iscar and chemical company Lubrizol, added $1.05 billion to earnings, compared with $1.33 billion a year earlier. Berkshire increased its headcount by about 2.9 percent in the year to 340,499 employees as Buffett and his managers expanded through acquisitions. Marmon Group, a collection of manufacturing and service businesses, expanded by almost 3,000 workers to 19,906.
Employment at some of Berkshire’s consumer brands shrank. Staff at See’s Candies fell from 3,000 to 2,380. The figure dropped 16 percent at ketchup maker H.J. Heinz to 24,500.
Climbing earnings at units like the railroad and energy operations have helped push the company’s market value past $360 billion, making it the fourth-largest publicly traded business in the world. Class A shares have risen 29 percent in the last year to $221,180, double the gain for the Standard & Poor’s 500 Index. Some fourth-quarter results were calculated by subtracting figures for the first nine months from the full-year data provided Saturday.

To contact the reporters on this story: Noah Buhayar in Seattle at nbuhayar@bloomberg.net; Zachary Tracer in New York at ztracer1@bloomberg.net To contact the editors responsible for this story: Dan Kraut at dkraut2@bloomberg.net; Dan Reichl at dreichl@bloomberg.net