Warren Buffet's Berkshire Hathaway more than doubled its profit in the third quarter mainly due to a $4.4 billion gain from the merger between H.J. Heinz Co and Kraft Group Inc.
According to Forbes, Berkshire's pretax profit for the third quarter is $14 billion. Notably, its profits went down by 35 percent in the second quarter. With investment gains, losses, and derivatives adjustments, the company reported $6.6 billion in pretax profits for the third quarter, which is a 4 percent year over year drop. The company's pretax profit for the first nine months of the year is $18.5 billion that translates to $7.50 per B share.
"Over all, quite decent operating earnings," said Ram Partners L.P. hedge fund principal Jeff Matthews in a report by The New York Times. "Nothing wrong with that given the weakness in the industrial side of the economy," he added.
Meanwhile, The Wall Street Journal reported that the third quarter gain overshadows the weakness in the company's core insurance underwriting business that experienced a drop in profit. Berkshire's operating profit went down 3.7 percent due to the lower income generated by its insurance underwriting business. This includes the Geico Corp., the second-largest auto insurer in the US. Operating profit does not include the investment results from the Kraft Heinz income. The company's insurance division underwriting profit dropped 43 percent to $414 million in a year. Meanwhile, Geico's underwriting growth is lower due to paying out more claims. The frequency of customer claims went up in all of its main coverage this year. Berkshire said the severity of these claims also increased.
Mr. Buffett keeps warning shareholders that investment gains and losses lead to volatile quarterly profits. Some of the company's biggest holdings, such as American Express and IBM have been declining recently, prompting Berkshire to book unrealized losses. The group said on Friday that it has no intention of selling IBM despite its $2 billion marked-to-market losses in September, which translates to 15 percent of the amount the company paid.
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