OMAHA, Neb. — Warren Buffett’s company reported a 49 percent surge in fourth-quarter profit because of a big paper gain on its investments and derivative contracts, but the investor called the year “subpar” as Berkshire’s results lagged the S&P 500.
Buffett recounted the fourth quarter and Berkshire Hathaway’s 2012 performance Friday in his annual letter to shareholders.
The Omaha-based company reported $4.55 billion net income, or $2,757 per Class A share, in the fourth quarter on $44.72 billion revenue. That’s up from $3.05 billion net income, or $1,846 per share, on $37.96 billion revenue the year before.
Jeff Matthews, who wrote “Warren Buffett’s Successor: Who It Is and Why It Matters,” said there were few surprises in Buffett’s annual report because the company is doing well.
“I thought it was pretty boring, and that’s good news,” Matthews said.
The paper value of Berkshire’s investments and derivatives soared to $1.7 billion in the fourth quarter, up from $382 million the year before. Buffett has said Berkshire’s investment and derivative gains or losses can be misleading because the company rarely sells its investments, and the derivatives don’t mature until about eight years from now.
Buffett says Berkshire’s operating earnings, which exclude the value of derivatives and investments, are a better measure of performance. They improved 5.5 percent to $2.8 billion in the quarter.
The biggest improvement in Berkshire’s operating businesses came in its insurance unit, which posted an underwriting loss $19 million in the fourth quarter versus the previous year’s $107 million underwriting loss.
Buffett praised Berkshire’s insurance managers at Geico, General Reinsurance and other companies for increasing the amount of money Berkshire gets to invest in exchange for writing insurance to $73 billion.
“Our insurance operations shot the lights out last year,” Buffett said.
Altogether Berkshire’s five most-profitable non-insurance businesses contributed $10.1 billion of pre-tax earnings.
Berkshire owns roughly 80 subsidiaries, including railroad, clothing, furniture and jewelry firms. Its insurance and utility businesses typically account for more than half of the company’s net income.
The Omaha, Neb., company also has major investments in such companies as Coca-Cola Co., IBM and Wells Fargo & Co.