Berkshire Operating Earnings Drop to $1.7 Billion (Update2)

By Erik Holm and Andrew Frye
Bloomberg News
May 2, 2009

May 2 (Bloomberg) -- Billionaire Warren Buffett said first- quarter operating earnings at his Berkshire Hathaway Inc. declined to about $1.7 billion from $1.9 billion a year earlier.

Berkshire businesses that make building materials and paint, and retailers selling jewelry and furniture were pressured as the housing market slumped and consumers held back on spending, Buffett said at Omaha, Nebraska-based Berkshire's annual shareholder meeting today.

"They are all getting hit because of the recession," Buffett said. "We're lucky to be, in this particular period, in the insurance and utility business. They are relatively unaffected, while our others are significantly to drastically affected."

The U.S. economy contracted at a 6.1 percent annual rate in the first quarter, weaker than forecast, making this recession the worst in a half century. Buffett, who serves as Berkshire's chairman, chief executive officer and head of investing, said in an interview with Bloomberg Television today that he's seen no indication of recovery from the real estate slump that weakened the economy.

Job Cuts

The results exclude some changes in the value of securities and derivative bets, complicating comparisons to past quarters. Berkshire has posted five straight declines in net income through the fourth quarter of 2008 as holdings lost value. Buffett said today that book value, a measure of assets minus liabilities, fell in the first quarter. The company is scheduled to release complete results on May 8.

Berkshire last year cut jobs at businesses including Clayton Homes Inc., which builds manufactured housing, and brickmaker Acme Building Brands. He replaced the CEO of Helzberg Diamond Shops Inc. in April, and today said he expected more job cuts in 2009.

"There really is no alternative," he said.

Berkshire's Geico Corp., the third-largest auto insurer in the U.S., added 505,000 new policyholders in the first four months of the year, Buffett said.

Berkshire shares have fallen 4.8 percent this year, after a 32 percent in decline in 2008. Eleven of the top 12 stocks in Berkshire's U.S. portfolio, valued at $51.9 billion as of Dec. 31, declined in the first quarter. Coca-Cola Co., Berkshire's top holding, dropped 2.9 percent. Wells Fargo & Co., the next largest, plunged 52 percent. Railroad Burlington Northern Santa Fe Corp. fell 21 percent.

Berkshire had about $22.7 billion in cash at the end of the first quarter, Buffett said.

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