Berkshire Reports 70% Profit Increase, Buys Toolmaker
By: Administrative Account | Source: Bloomberg
May 6, 2006 6:20AM EST

May 5 (Bloomberg) -- Warren Buffett's Berkshire Hathaway Inc. reported a 70 percent increase in first-quarter profit and said it would buy most of Iscar Metalworking Cos., an Israeli family-owned toolmaker, for $4 billion. Net income climbed to $2.31 billion, or $1,501 a share, from $1.36 billion, or $886, a year earlier, Berkshire said in a statement today. The company earned more interest income from its insurance units and reported $526 million in investment gains, compared with $77 million in losses a year earlier. Berkshire, announcing the Iscar acquisition on the eve of its annual weekend-long shareholder meeting in Omaha, Nebraska, said it would buy 80 percent of ``an industry leader'' in metal- cutting tools. Buffett, the holding company's billionaire chairman, complained about a dearth of investment opportunities at last year's meeting and has amassed $42.9 billion in cash. ``Good for Warren,'' investor Frank Betz, a partner at Carret Zane Capital Management, said in an interview in Omaha. ``He's finally found something to buy.'' Betz helps manage $100 million at Warren, New Jersey-based Carret Zane, including Berkshire shares. Berkshire's investment gains included $151 million from foreign currency investments. Buffett, who lost $307 million on foreign currencies a year ago, reduced his bet against the dollar to $5.4 billion in March from $13.8 billion in December. During the quarter, the dollar weakened 1.6 percent against a basket of six major currencies. He has been betting the U.S. trade deficit would weaken the nation's currency since 2002. Beating Estimates Profit before the investment gains was $1.79 billion, or $1,160 a share, higher than analysts had estimated. Gary Ransom, an analyst at Fox-Pitt Kelton Inc. in Hartford, Connecticut, had projected $1,061, while Charles Gates of Credit Suisse Group in New York predicted $1,102. Buffett, who relies on its insurance units for about half his company's profit, said income from investing premiums rose 29 percent to $1.02 billion, before taxes, as the company benefited from higher short-term interest rates. Gates had expected $927 million. ``A lot of trends are starting to work in their favor. Interest rates are up, so they are not getting penalized for holding on to a lot of cash,'' said Keith Trauner, who helps manage about $3.8 billion at Fairholme Capital Management, including shares of Berkshire. Geico's Advertising Underwriting results in the insurance businesses were mixed. At Geico Corp., the second-largest contributor to earnings, pretax underwriting profit fell $1 million to $311 million, the first quarterly decline in more than two years. Expenses at the No. 4 U.S. car insurer climbed 16 percent as advertising costs rose. At General Re Corp., which reinsures other insurers, pretax underwriting profit rose almost three-fold to $71 million. Berkshire Hathaway Reinsurance Group had a 34 percent decline to $94 million as it continued to pay claims from Hurricane Wilma, which hit Florida last year. Berkshire, which owns dozens of companies ranging from candy makers to utilities, needs to make ``major acquisitions'' to accelerate growth in earnings, Buffett, 75, told shareholders in his annual letter in March. His cash holdings dropped from $45 billion at the beginning of the year. ``He has indicated that he would direct money for investments in foreign companies,'' said Tom Russo, a partner at Gardner Russo & Gardner in Lancaster, Pennsylvania, who oversees almost $3 billion, including Berkshire shares. ``I expect acquisitions going forward to be increasingly international.'' Sandvik The companies didn't release any information on Iscar's earnings or how the investment was expected to affect Berkshire. Sandvik AB of Sweden, the world's biggest maker of metal-cutting tools, this week said first-quarter profit rose 43 percent as mining clients invested in machinery. The company has a market value of 123 billion kronor ($16.8 billion). ``The industrial businesses have just started to turn the last couple of years,'' said Eli Lustgarten, an analyst at Cleveland-based Longbow Research. ``It's clearly the place to be in the long term.'' About 20,000 shareholders and admirers will attend the meeting to hear Buffett, the world's second-richest man, expound on investments, executive compensation and the nation's economic policies. Buffett owns 498,320 shares of Berkshire valued at $44 billion. The stock dropped 4.8 percent in the past two years, while the Standard & Poor's 500 Index returned 23 percent and the Dow Jones Industrial Average Index returned 17 percent.

To contact the reporter on this story: To contact the reporter on this story: George Stein in New York at ghstein@bloomberg.net; Jesse Westbrook in Washington at jwestbrook1@bloomberg.net. Last Updated: May 5, 2006 22:05 EDT