Berkshire expects first-quarter profit

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.