BNSF Railway profit falls 25 percent on reduced oil, coal shipments
Berkshire Hathaway said Friday that quarterly profits from Fort Worth-based BNSF Railway fell 25 percent to the lowest level in two years, contributing to the drop in operating earnings at Warren Buffett’s company.
First-quarter net income at BNSF declined to $784 million from $1.05 billion a year earlier, the company said in a regulatory filing. Berkshire’s overall net income climbed 8.2 percent to $5.59 billion as investment gains outweighed the slump in the railroad and insurance operations. That figure was disclosed April 30, when Buffett released a brief summary of results at Berkshire’s annual meeting in Omaha, Neb.
Buffett bought BNSF in 2010, and the railroad immediately became one of Berkshire’s top sources of earnings. Profit gained for years, in part because of fast-growing shipments of oil from the Bakken Shale in North Dakota, located near BNSF tracks.
More recently, BNSF has been cutting staff after low oil prices and a nationwide shift away from coal depressed demand for shipping.
“It’s a terrific and valuable asset, and it will earn a lot of money this year, but it won’t earn as much money as it earned last year,” Buffett said of the railroad at the meeting last weekend. “All of the major railroads were down significantly in the first quarter and probably will continue to be down, almost certainly will continue to be down, the balance of the year.”
Berkshire’searnings per share rose to $3,401 from $3,143. Operating profit fell 12 percent to $3.74 billion, a figure that was disclosed at the meeting.
Reinsurance, utilities
Berkshire’s namesake reinsurance group, led by Ajit Jain, posted a pretax underwriting loss of $79 million, compared with a profit of $459 million a year earlier. A portion of the decline was due to how it estimates losses for businesses sold in prior years. Results improved at Geico and General Re.
The utility segment, Berkshire Hathaway Energy, contributed $441 million, a 4.8 percent increase from a year earlier. The business operates electric grids in the United Kingdom, natural gas pipelines that stretch from the Great Lakes to Texas, and power companies in states including Iowa and Nevada.
The cash pile decreased to $58.3 billion on March 31 from $71.7 billion at the end of the fourth quarter. In January, Buffett completed one of his biggest deals ever: a $32.7 billion buyout of manufacturer Precision Castparts.
Duracell deal
Net income was helped by a one-time gain on Procter & Gamble stock. Buffett traded his long-held shares in the consumer goods firm during the quarter for full ownership of P&G’s Duracell battery unit. The transaction increased earnings by $1.9 billion and is part of the reason the stock portfolio shrank to $106.4 billion on March 31, from $111.8 billion at the end of 2015.
Buffett and his deputy investment managers, Todd Combs and Ted Weschler, spent $3.1 billion on equities and $1.5 billion on fixed-maturity securities in the quarter. Berkshire sold about $2.3 billion in stock and got about $2.8 billion from the redemption and maturity of bonds during the period.
This story was originally published May 6, 2016 at 4:59 PM with the headline "BNSF Railway profit falls 25 percent on reduced oil, coal shipments."