Warren Buffett's Berkshire Hathaway Inc posted its first quarterly loss since 2001, hurt by losses on derivative contracts, a big investment in the oil company ConocoPhillips, and the weakening economy.
The net loss for the Omaha, Nebraska-based insurance and investment company was $1.53 billion, or $990 per Class A share, and compared with a profit of $940 million, or $607, a year earlier.
Excluding investments, operating profit fell 12 percent to $1.71 billion, or $1,100 per share, from $1.93 billion, or $1,247. That profit was in line with the $1.7 billion that Buffett estimated at Berkshire's annual meeting last Saturday.
Analysts on average expected operating profit of $1,087 per share, according to Reuters Estimates. Revenue fell 9.5 percent to $22.78 billion. Book value per Class A share fell 6.1 percent to $66,248, following a 9.6 percent drop in 2008.
Buffett said many of Berkshire's nearly 80 businesses were hurt by the recession and lower consumer spending, including housing-related units that make bricks, insulation and paint.
Berkshire last had a quarterly loss in the third quarter of 2001, because of insurance claims from the September 11 attacks. It called the global credit crisis temporary, but said the company could face significant pressure if it persists.
Results reflect the overall economy, which Buffett does not expect to recover quickly, said Michael Yoshikami, president of YCMNET Advisors in Walnut Creek, California, which owns Berkshire shares.
Two credit rating agencies took away Berkshire's triple-A ratings in 2009, including Moody's Investors Service. Berkshire owns 20.4 percent of Moody's parent, Moody's Corp.
The results reflected $2.01 billion of writedowns on investments, including $1.9 billion tied to ConocoPhillips.
Buffett invested $7.01 billion in the company's stock, but in February admitted to terrible timing for investing ahead of a plunge in oil prices from their record high near $150 a barrel. Berkshire said it sold 13.7 million shares in the first quarter, leaving it with 71.2 million. It said it has since sold more and is likely to keep selling shares at a loss.
Results also included $986 million of derivatives losses, including $675 million of payments tied to junk bond defaults as a result of several corporate bankruptcies. Berkshire has since paid another $450 million because of other defaults.
The company as of March 31 had $13.85 billion of paper losses on derivatives contracts designed to make money if stock indexes rise and higher-risk bonds do not default. Accounting rules require Berkshire to report these losses with earnings.
Conoco reflected his bad decision to buy when oil prices were high and the losses reflect how Buffett is not afraid to admit a mistake, Yoshikami said. The derivative problems seem to have accelerated, though Buffett is probably doing better this quarter with the stock index derivatives.
The stock index derivative contracts mature between 2019 and 2027 and Buffett said last week he expects them to be profitable. Contracts tied to junk bond defaults mature between 2009 and 2013, and Buffett admitted they may lose money.
The Standard & Poor's 500 fell 11.7 percent in the first quarter, while S&P said the U.S. junk bond default rate rose to 5.42 percent from 3.96 percent at year end.
In Friday trading, Berkshire Class A shares closed up $905 at $95,295, while its Class B shares rose $80 to $3,132.
INSURANCE UNITS GAIN
Insurance underwriting profit rose 21 percent to $219 million, while insurance investment income rose 29 percent to $1.03 billion. Earned premiums rose 32 percent to $8.18 billion, with most of the increase in reinsurance operations.
Pre-tax underwriting gains at auto insurer Geico Corp fell 20 percent to $148 million, as higher average claims offset a 10.3 percent increase in the number of policies.
General Re Corp had a $16 million pretax underwriting loss, hurt by storm losses, while Berkshire Hathaway Reinsurance Group's pretax underwriting gain grew sevenfold to $203 million, helped by a transaction with Swiss Re.
In other businesses, net income from utilities and energy fell 36 percent to $203 million, hurt by lower energy costs, while income from manufacturing and retailing businesses fell 47 percent to $258 million.
The economy also led to a drop in business travel, causing Berkshire's NetJets unit, which provides private jet services to executives, to lose $96 million before taxes.
Berkshire's $25.55 billion cash stake was roughly unchanged from year end. The company later invested $3 billion toward Dow Chemical Co's purchase of rival Rohm and Haas Co.
Buffett has transformed Berkshire since 1965 into a roughly $148 billion conglomerate by acquiring well-run businesses and investing in stocks such as Coca-Cola Co, Procter & Gamble Co and Wells Fargo & Co.
(Reporting by Jonathan Stempel, Additional reporting by Lilla Zuill; editing by Matthew Lewis and Andre Grenon)