Berkshire expects first-quarter profit

Despite a positive report, CEO Warren Buffett tells shareholders the firm's net worth fell 6%, as investment and derivatives losses mounted.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Colin Barr, senior writer

After a strong April, how will the major stock indexes fare in May?
  • They'll be higher
  • They'll be lower
  • They'll be flat

OMAHA, Neb. (Fortune) -- Berkshire Hathaway expects to report a first-quarter operating profit next week, CEO Warren Buffett said Saturday. However, he added that the firm's net worth continues to decline under the weight of losses from investments and derivatives bets.

At Berkshire's annual meeting Saturday, Buffett said that the firm expects to post an operating profit - excluding investment gains and losses - of $1.7 billion for the quarter, down from $1.9 billion a year ago.

The quarter featured solid gains in Berkshire's utilities and insurance operations and less favorable performances from its more economically sensitive businesses, such as furniture and jewelry stores, he explained.

In recent years Berkshire has typically filed its first-quarter report on the eve of the annual meeting. But Berkshire said this past week that it wouldn't have numbers ready this weekend. Instead, it expects to announce the results the afternoon of Fri., May 8.

The delay gave rise to some speculation about what the first-quarter report would show. Buffett said Saturday that the decision was driven largely by a quirk of the calendar - not by any change in policy.

Securities and Exchange Commission rules give companies 40 days after the close of a quarter to file their quarterly reports. The company's policy has been to file those results on the last Friday before that window closes. This year, the 40th day falls the week after the annual meeting.

Buffett said his favorite measure of how Berkshire is doing - its net worth, as determined by the value of its assets - dropped 6% in the first quarter. That adds to a nearly 10% drop during 2008, when Berkshire's investment portfolio was hit by plunging global stock markets.

Those declines were among the factors that led two ratings agencies to downgrade Berkshire's debt. Among the agencies yanking the company's AAA rating was Moody's - a major Berkshire shareholding.

Buffett said Saturday that he was "disappointed" when Moody's cut its Berkshire ratings, though he said the decision was lamentable mostly because it led to a loss of "bragging rights" - not because it will materially raise Berkshire's borrowing costs.

"We're still a triple-A in my mind," Buffett said. "There can be no stronger credit than Berkshire."

Buffett said one contributor to the first quarter's drop in net worth was an increase in defaults on debt issued by companies with low credit ratings. Berkshire has written some derivatives contracts promising to pay its trading partners in the event of defaults by companies in certain high-yield debt indexes.

Defaults have risen sharply as the economy slows, and Buffett said Saturday he now believes Berkshire is likely to end up losing money on those bets. He said in his annual letter to shareholders in February that his view on how Berkshire would fare in those bets had changed over the past year, to a possible loss from a likely profit.

Even so, Buffett said Saturday that he will continue to dabble in derivatives markets when he believes they are mispriced and offer Berkshire shareholders a good profit opportunity. To top of page

Company Price Change % Change
Bank of America Corp... 15.58 0.24 1.56%
Genworth Financial I... 13.98 -2.28 -14.02%
Facebook Inc 74.68 0.97 1.31%
Pfizer Inc 29.26 -0.21 -0.71%
Apple Inc 98.15 -0.23 -0.23%
Data as of Jul 30
Index Last Change % Change
Dow 16,880.36 -31.75 -0.19%
Nasdaq 4,462.90 20.20 0.45%
S&P 500 1,970.07 0.12 0.01%
Treasuries 2.55 0.09 3.74%
Data as of 12:47am ET
More Galleries
The 13 most WTF gadgets From the weird to the gross, these 13 gadgets will make you wonder why they even exist. More
Best-loved cars in America These cars and trucks topped J.D. Power's APEAL survey, which measures how much owners like their new vehicles. More
America's most powerful cars A new 'horsepower war' has erupted among U.S. automakers and these are the most potent weapons in their arsenals. More
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.