Warren Buffett's conglomerate Berkshire Hathaway Inc
The 80-year-old Oracle of Omaha warned in April the insurance business was probably going to post an underwriting loss for the year because of the severe earthquakes in Japan and New Zealand in the first quarter.
Analysts and investors said the quarter was much as they expected, although the long-term questions about Buffett's succession plans remain. Buffett has said Berkshire will separate his CEO and investment chief roles when he is gone, but has given no clarity on who will fill them.
Berkshire reported a net profit of $3.42 billion, or $2,072 per share, compared with a year-earlier profit of $1.97 billion, or $1,195 per share.
Revenues at the insurance business rose by roughly $2 billion from a year earlier, driven by an asbestos reinsurance contract with AIG
You can't look at insurance in a vacuum over one quarter, said Tom Lewandowski, financial services analyst at Edward Jones. I'm not overly disappointed.
Revenue also was up sharply at the railroad Burlington Northern Santa Fe, and earnings rose nearly 15 percent year-on-year. Berkshire said it managed to handle more rail cars and to get higher revenue per car.
Profits were sharply higher in the manufacturing, service and retailing segment, reflecting a wide array of stronger results in lines including engineered products, metalworking and building products.
One of the downsides in the quarter was manufactured housing business Clayton Homes, where revenue from home sales declined 30 percent and the average price per home sold also fell.
Besides the operating results, the company also benefited from better investment results than in prior periods.
Berkshire recorded smaller losses on a derivative position linked to stock markets, $184 million versus a loss of $2.18 billion a year earlier. Though he has condemned derivatives generally, Buffett has said this particular investment could be lucrative for the company over time.
The company also had no writedowns in the second quarter for other-than-temporary losses on stocks. Berkshire has been under pressure from securities regulators to more quickly recognize losses on shareholdings when those stocks have been in a loss position for more than a year.
Book value per share, Buffett's preferred measure of the conglomerate's worth, rose 3.4 percent to $98,716 per Class A-equivalent share. One investor said the company's shares are at the second-lowest multiple to book value he has seen in the last 30 years.
The stock is crazy undervalued, said Steve Check, president of Check Capital Management in Costa Mesa, California, whose largest shareholding is Berkshire Class B stock. In plain daylight you have a very large, stable company about 35 percent underpriced.
But despite that attractive valuation, Lewandowski had a hold rating on the stock because of questions about what Berkshire will do with its cash -- $47.89 billion at the end of the quarter, nearly $20 billion more than a year ago and $6.7 billion more than at the end of the first quarter.
That and the unanswered question of who will run Berkshire after Buffett steps aside are key parts of the investment story, he said.
You have these concerns, you generate all this cash, you've got to put all that cash to work, he said. There's a reason why we've seen the multiples contract.
(Reporting by Ben Berkowitz; editing by Matthew Lewis, Carol Bishopric and Andre Grenon)