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Buffett's Berkshire squeezed by losses

The conglomerate posts much lower sales and a net loss on continued hits to its derivative-related insurance contracts.

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By David Goldman, CNNMoney.com staff writer

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Warren Buffett, speaking at Berkshire's annual shareholders' meeting last week, said the company's net worth would continue to fall in the first quarter.
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NEW YORK (CNNMoney.com) -- Berkshire Hathaway Inc. reported a quarterly loss Friday that fell from year-ago results on steep losses in the value of its derivative contracts.

Berkshire (BRK.A) said it lost $1.5 billion in its first quarter, compared to a $1 billion profit during the same period a year ago.

Operating income, which excludes investment gains and losses, dropped 12% to $1.7 billion, or $1,100 per share.

But the company's net worth, as measured by its total assets, slid only 2.6%. That's better than the 6% that Chief Executive Warren Buffett predicted at the company's annual shareholders' meeting last week.

In 2008, Berkshire's net worth declined nearly 10% -- its biggest ever since Buffett took hold of the company -- as the Omaha, Neb., firm's investment portfolio was hit by plunging global stock markets.

Revenue fell 9.5% to $22.8 billion.

Shares of Berkshire were unchanged after-hours.

Berkshire's insurance operations, including auto insurer Geico, posted strong earnings. Profit at the company's insurance underwriting business jumped 21% from last year. But Berkshire's retail businesses, including its furniture and jewelry units, are more susceptible to economic swings, and profits in those divisions sank 47%. Berkshire's utilities and finance units also posted lower profits from the first quarter of 2008.

Derivatives plague Berkshire. Buffett said at the shareholders' meeting last week that losses from defaults and bad bets on derivatives would cut into the company's profit and revenue.

Berkshire's insurance business, like many other insurers, has written some contracts on derivatives, promising to pay its trading partners in the event of default on the underlying assets. Defaults had been rising sharply ever since the housing market and economy took a beating.

The company's derivative-related losses totaled $986 million in the quarter, down 7.6% from the $1.1 billion of derivative losses the company suffered in the year-earlier quarter.

The recession has hit Berkshire's stock particularly hard. Its shares lost 31.8% of their value in 2008 and 1.7% so far this year. At one point last year, more than five years of shareholders' gains had been wiped out. And last month, the company lost its "perfect" AAA credit rating, when Moody's downgraded Berkshire one notch.

In recent years Berkshire has typically filed its first-quarter report on the eve of its annual meeting. But the company held its shareholders' meeting a week earlier than its financial report's release this year.

The delay gave rise to some speculation about what the first-quarter report would show. Buffett said last Saturday that the decision was driven largely by a quirk of the calendar - not by any change in policy. The company usually reports its results on the Friday before the 40th day after the quarter's end. This year, the 40th day fell the week after the annual meeting.

-- Fortune's Colin Barr contributed to this story. To top of page

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