Berkshire Hathaway Slips To $1.52 Bln Loss In Q1 - Update

Mon. May 11, 2009; Posted: 02:48 AM

(RTTNews) - Billionaire investor Warren Buffett's investment manager Berkshire Hathaway Inc. (BRK-A | Quote | Chart | News | PowerRating) on Friday reported a steep loss of $1.53 billion for the first-quarter compared to a profit last year, hurt by a drop in revenues as well as huge investment and derivative losses primarily on write-downs on investment in ConocoPhillips (COP | Quote | Chart | News | PowerRating) shares. However, the company's quarterly operating revenues declined only 11%, excluding the losses. This marks the sixth consecutive decline in the company's operating results, but its first quarterly loss in eight years.

Shares of Berkshire have lost 26% of their value in the past 52-week period. Buffett has recently blamed himself for making certain 'dumb' investment decisions last year and also hinted that the company's reinsurance head Ajit Jain might be the possible successor for his businesses. However, there are also other names doing the rounds.

In a Form 10-Q filing with the U.S. Securities and Exchange Commission on Friday, the company noted, "Earnings of most of Berkshire's diverse group of manufacturing, service and retailing businesses for the first quarter of 2009 declined compared to the first quarter of 2008. The effects from the current worldwide economic recession resulted in lower sales volume, revenues and profit margins as consumers have significantly curtailed spending, particularly for discretionary items."

First-Quarter Results

The Omaha, Nebraska-based company reported net loss of $1.53 billion or $990 per Class A share for the first-quarter, compared to net earnings of $940 million or $607 per share Class A share for the year-ago quarter. Excluding results from acquired business, pro forma net earnings for the prior-year quarter was $930 million or $601 per share Class A share.

Berkshire had $3.24 billion of net losses from investments and derivatives in the first-quarter, compared to losses of $991 million in the first-quarter of 2008.

Excluding investment and derivative gains and losses, operating earnings for the quarter declined to $1.71 billion or $1,100 per Class A share from $1.93 billion or $1,247 per Class A share in the prior-year quarter.

Insurance underwriting generated operating earnings of $219 million in the first-quarter, up from $181 million in the same quarter last year. Insurance-investment income for the quarter increased to $1.03 billion from $802 million in the year-ago quarter. However, operating earnings from the company's non-insurance businesses dropped to $539 million in the first- quarter from last year's $950 million.

Total revenues for the quarter declined to $22.78 billion from $25.18 billion in the same quarter last year. Excluding contributions from acquired business, pro forma revenues for the year-ago quarter were $26.59 billion.

Insurance and other revenues for the first-quarter decreased to $20.25 billion from $22.27 billion in the year-ado quarter. Utilities and energy revenues totaled $2.95 billion, down from $3.39 billion in the prior-year quarter. The company recorded negative revenue of $418 million for its finance and financial products, compared to negative revenues of $487 million in the first quarter of last year.

Other Metrics and Information

Total costs and expenses for the quarter were $25.33 billion, up from $23.72 billion in the year-ago quarter. Expenses primarily include insurance losses and loss adjustment expenses of $6.01 billion, higher than $4.04 billion in the prior-year quarter.

The company ended the first-quarter with cash and cash equivalents of $25.55 billion, compared to $35.57 billion at end of the prior-year quarter.

During the first-quarter, Berkshire acquired a 12% convertible perpetual instrument issued by Swiss Reinsurance Co. for US$2.6 billion, and made smaller deals to buy debt in firms commanding yields as high as 15%. On April 1, 2009, Berkshire invested $3 billion in an 8.5% cumulative convertible perpetual preferred stock of the Dow Chemical Co. (DOW | Quote | Chart | News | PowerRating)

At the Berkshire Hathaway annual shareholders' meeting on Saturday, Buffet reportedly stated that the firm's book value per share fell by 6% over last year, due mainly to the decline in the value of its investments. Also known as the 'Oracle of Omaha", Buffet picks stocks that he feels would have value forever. Though his investments are mostly in insurance and in utilities, such companies and other non-insurance operating companies have felt the pinch of the dire economic environment.

Last month, ratings agency Moody's downgraded the credit rating for Berkshire Hathaway and several of its insurance subsidiaries. The long-term issuer rating of Berkshire Hathaway was lowered to Aa2 from Aaa, while the Insurance Financial Strength or IFS rating of National Indemnity Co., a subsidiary of Berkshire and its flagship reinsurer, was downgraded to Aa1 from Aaa. The senior unsecured debt of GEICO Corp. and General Re Corp. was lowered to Aa3 from Aa1. The agency attributed the ratings changes to two factors - the impact of the decline in equity markets in the past year on the major businesses of Berkshire and secondly the protracted economic recession. Berkshire's Prime-1 short-term issuer rating has been affirmed. The rating outlook is stable.

Earlier, Standard & Poor's Ratings Services lowered its ratings outlook on Berkshire, its finance unit Berkshire Hathaway Finance Corp., and its core insurance companies, including Berkshire Hathaway Assurance Corp., to negative from stable. S&P cited the reduction in the company's insurance operations capital caused by stock market declines as reason for the revised outlook. Standard & Poor's also said it affirmed all of its ratings on these companies, including its "AAA/A-1+" counterparty credit rating on Berkshire Hathaway. The company thus retains the highest rating from both Standard & Poor's as well as Moody's.

In March, another ratings agency Fitch also downgraded Berkshire Hathaway's Issuer Default Rating to AA+ from AAA and senior unsecured debt ratings to AA from AAA, while affirming its AAA IFS ratings on the company's insurance and reinsurance subsidiaries. The rating outlook for all entities was "Negative". Fitch attributed the downgrade to concerns about the potential for losses on the insurer's equity and derivatives holdings.

Stock Quote

BRKa closed Friday's regular trading session at $95,295.00, up $905.00 or 0.96% on a volume of 1,010 shares. In the past 52-week period, the stock has been trading in a broad range of $70,050.00 to $147,000.00.

For full details on Berkshire Hathaway Cl A (BRKA) click here. Berkshire Hathaway Cl A (BRKA) has Short Term PowerRatings of 5. Details on Berkshire Hathaway Cl A (BRKA) Short Term PowerRatings is available at This Link.

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