Berkshire Hathaway (BRK-A) will probably post a record full-year profit, showing how Chairman Warren Buffett's five decades of acquisitions positioned his company to benefit from a rebounding U.S. economy.
Net income was at least $18 billion in 2013, according to analysts at Nomura Holdings. and Keefe Bruyette & Woods. That compares with $14.8 billion in 2012, the previous record. Omaha, Neb.-based Berkshire said it will release its annual report March 1 at about 8 a.m. New York time.
Buffett, 83, gained fame with equity investments in businesses like Coca-Cola (KO), which appreciated after his purchases. He expanded Berkshire through takeovers, creating a $280 billion holding company with operations ranging from auto insurer Geico to railroad Burlington Northern Santa Fe.
Investors "still think of Berkshire almost like it's a mutual fund, but that's really not true anymore," said Cliff Gallant, a Nomura analyst who estimates that full-year earnings were $18.5 billion. "Major corporations now are under its wing, and all of them are pretty strong earnings and cash-flow producers."
A pick-up in consumer spending has helped boost the U.S. economy and is laying the groundwork for further gains this year. Gross domestic product expanded at a 3.2 percent pace in the fourth quarter, Commerce Department figures showed Jan. 30.
Buffett's company stands to benefit from that trend because many of its subsidiaries count the U.S. as their largest market. Among Berkshire's more than 80 operating businesses are furniture retailers, a trucking company and a home builder. Meyer Shields of KBW estimates that Berkshire's full-year profit will climb to $18 billion.
Insurance units were a big contributor to earnings last year because disaster claims fell, Gallant said. Calmer-than-average weather in 2013 helped buoy profit industrywide a year after Superstorm Sandy lashed the U.S. Northeast.
Carriers shouldered $31 billion in claims from the costliest disasters worldwide last year, compared with the $56 billion average from 2003 to 2012, according to Munich Re, the world's largest reinsurer.
Berkshire's energy and railroad units were also on pace through the first nine months of last year to eclipse their 2012 earnings. The expansion of U.S. oil drilling has helped BNSF, which hauls crude from production fields to refineries. Utility unit MidAmerican has seen its profits rise as it gained approval to increase rates in parts of its service area. The company also bought Nevada's largest utility in December.
Profit will benefit from dividends Berkshire receives as a part of its $12.3 billion investment in H.J. Heinz. Buffett's agreement to take over the ketchup maker last year with Jorge Paulo Lemann's 3G Capital included preferred shares that pay $720 million annually.
Berkshire's Class A stock has slipped 4.2 percent this year through yesterday, compared with a decline of 0.2 percent for the Standard & Poor's 500 Index. Coke, one of Buffett's largest stock holdings, has fallen this year as the soft-drink maker faces sluggish growth outside the U.S. and concerns about the healthiness of its product at home.
The billionaire has said he focuses on increasing Berkshire's net worth rather than its stock price. On a per-share basis, the company's book value has outperformed the S&P 500 including dividends over every five-year period from when he took control of the company in 1965 through 2012. That record may have fallen at the end of 2013 because of the equity benchmark's rally since the depths of the financial crisis.
In addition to providing results, Buffett has used his annual report to opine on the economy, business and investing. He also gives shareholders a preview of what to expect at the company's annual meeting in Omaha in May, which typically draws thousands of attendees.
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