2012

10:21AM EDT November 3. 2012 -


OMAHA, Nebraska (AP) — Warren Buffett's company said late Friday its third-quarter profit soared 72% because the value of its investments and derivative contracts increased significantly.



But Buffett has said he believes Berkshire Hathaway's operating earnings, which exclude the value of its derivatives and investments, are a better measure of the company's performance.



The conglomerate's operating earnings declined 11% in the quarter, to $3.4 billion from last year's $3.8 billion, hampered by a drop in insurance underwriting profits.



Jeff Matthews, an investor who wrote "Secrets in Plain Sight: Business & Investing Secrets of Warren Buffett," said he was surprised not to see any mention of Berkshire insurance liabilities related to Superstorm Sandy that struck the East Coast the past week.



"The thing that jumped out at me was that there was no commentary on the hurricane. That means they have no significant exposure," Matthews said. Beyond that, he said there were few surprises in the quarterly results, which generally showed Berkshire's businesses moving ahead steadily.



Berkshire's insurance and utility businesses typically account for more than half of the company's net income. The conglomerate owns roughly 80 subsidiaries, including railroad, clothing, furniture and jewelry firms, and has major investments in such companies as Coca-Cola, IBM and Wells Fargo.



For the quarter, Berkshire Hathaway reported net income of $1.58 per Class B share (BRK.B). That's up from 92 cents per share, a year ago. Its revenue grew to $41.05 billion from last year's $33.74 billion.



The company bested profit and revenue estimates of FactSet, which had expected earnings of $1.38 per Class B share on $39.04 billion revenue.



The company's insurance unit, which includes Geico and several large reinsurance companies, pulled third-quarter profits lower especially compared to results a year ago, when a one-time $855 million adjustment in liabilities of several reinsurance contracts boosted profits.



Berkshire's insurance underwriting profit for the quarter was $392 million this year, down from $1.09 billion last year.



For the quarter, Berkshire's profit increase was boosted by a jump in the value of its derivatives tied to equity markets. Investment gains and derivative losses together added $521 million to quarterly net income. A year ago, those items drained $1.53 billion from third-quarter profit.



In the past, famed investor Buffett has cautioned against putting too much significance on changes in the value of the company's investments and derivatives because investments are rarely sold, and the derivatives it owns don't mature for about eight years.



Several subsidiaries also performed well, including Berkshire's BNSF Railway. It contributed $937 million to third-quarter profits compared with $766 million a year ago. BNSF increased prices about 2% and hauled 5% more carloads of freight. It also kept expense growth to less than 3%.



Another boost came from profit gains at specialty chemical maker Lubrizol, which Berkshire acquired last September. That acquisition, combined with a modest improvement in housing construction, helped Berkshire's manufacturing, service and retail unit earn $991 million, up from $836 million last year.



Berkshire's utilities, which include Iowa-based MidAmerican Energy, added $438 million to quarterly profits, up from $372 million last year.



On Friday, Berkshire announced plans to acquire Omaha-based Oriental Trading Co., which offers more than 40,000 party supplies, arts, crafts, toys and other trinkets through its mail-order catalog and website.



Oriental Trading generates about $500 million in annual revenue and has about 2,000 employees. Financial terms for the deal weren't disclosed.



Berkshire executives typically do not comment on quarterly earnings reports, and they did not respond to an interview request late Friday.