Warren Buffett's company reports 46 percent jump in 2Q profit on big paper gain on investments

OMAHA, Neb. — Berkshire Hathaway Inc.'s second-quarter profit jumped 46 percent as Warren Buffett's company reported big paper gains on the value of its investments and derivative contracts.

On Friday, Berkshire reported net income of $4.54 billion, or $2,763 per Class A share. That's up from $3.1 billion, or $1,882 per Class A share, last year.

The biggest factor behind the big swing in earnings was the estimated value of Berkshire's investments and derivatives. This year, those were worth $622 million. Last year, Berkshire recorded a $612 million paper loss on those.

Berkshire's revenue grew 16 percent to $44.69 billion as its more than 80 subsidiaries generally performed well.

The three analysts surveyed by FactSet expected Berkshire to report earnings per Class A share of $2,163.63.

Several years ago, Berkshire sold derivative contracts that are tied to either the value of several global stock indexes or credit defaults. Berkshire must estimate the value of those contracts every time it reports earnings even though the contracts won't mature for at least several more years.

So the true value of the derivatives won't be known until later, but they can create big swings in Berkshire's net income from quarter to quarter.

Berkshire's BNSF railroad performed well in the quarter and contributed $884 million to the conglomerate's profits, up from $802 million a year ago.

BNSF said volume was up 3 percent this year and rates improved 2 percent as the railroad hauled more coal, crude oil and intermodal containers of products. Berkshire said higher natural gas prices and low utility stockpiles drove coal demand higher.

Edward Jones analyst Tom Lewandowski said Berkshire's 2010 acquisition of BNSF looks better and better as time passes.

"The ability to deliver consistent results that grow steadily is very attractive," said Lewandowski, who recommends buying Berkshire stock.

Berkshire's insurance businesses, which include reinsurance giant General Re and car insurer Geico, contributed $530 million to Berkshire's net income in the quarter. That was down from $619 million last year mostly because Berkshire recorded $189 million in pretax losses related to flooding in Europe.

All of those companies posted stronger profits as the housing market continued to recover. Berkshire said its real estate brokerage revenues jumped 29 percent to $115 million in the quarter.