Analyst Justin Fuller, who writes about Berkshire online at www.buffettologist.com, said this was a tough quarter for Berkshire with the only bright spots coming in its utilities and insurance companies, which include Geico and General Reinsurance.
"Not surprisingly, every other business has been flat on its back in the last quarter," said Fuller, who works with Midway Capital Research & Management in Chicago.
Berkshire's revenue fell 9.5 percent in the quarter, to $22.8 billion from last year's $25.2 billion.
In his shareholder letter, Buffett already acknowledged a mistake in last year's purchase of a large amount of ConocoPhillips stock when oil and gas prices were near their peak.
Berkshire said Friday it sold 13.7 million of its 79.9 million shares of ConocoPhillips during the first quarter and additional shares were sold after the quarter to generate a loss that can offset past capital gains taxes. Berkshire reported a $241 million loss on the sale of investments in the quarter, compared to a $76 million gain on the sale of investments in the same period a year ago.
It also recorded a $1.9 billion after-tax charge to reduce the value of its remaining 71.2 million shares to March 31 values. Berkshire said in a news release that it expects to be able to recover $690 million in federal capital gains tax payments made in 2006 if it records capital losses this year of at least $1.98 billion.
Berkshire's derivative losses moderated in the quarter as the value of the contracts tied to equity indexes improved. But Berkshire had to pay out $675 million on derivative contracts tied to the credit risks of individual companies during the quarter.
Since the quarter ended, Berkshire paid out another $450 million on credit default derivatives, leaving it with about $3.3 billion in reserves for future losses on those contracts.
During the quarter, Berkshire recorded an overall loss on its derivatives of $986 million, down from a $1.1 million loss last year, and most of those losses weren't realized because most of the contracts don't mature for several years.
Fuller said investors should look beyond the $1.5 billion net loss because most of that was tied to the ConocoPhillips write down and unrealized derivative losses, so it's not as if Berkshire burned through $1.5 billion cash.
Berkshire executives say the company's operating earnings are a better measure of how the company is performing in any given period because those figures exclude its derivatives and investment gains or losses. Berkshire reported $1.71 billion in operating earnings in this year's first quarter, which was down nearly 12 percent from $1.93 billion in operating earnings a year earlier.
Berkshire executives typically do not comment on quarterly earnings reports, and they did not respond to an interview request on Friday.
Buffett said during the company's annual meeting last Saturday that Berkshire's utility and insurance businesses performed fairly well during the quarter because neither is greatly affected by the recession, but two one-time items affected the utility earnings.
Berkshire's insurance businesses generated an underwriting profit of $219 million and investment income of more than $1 billion in this year's first quarter. A year ago, the insurance unit delivered $181 million underwriting profit and an $802 million investment gain.
Morningstar analyst Bill Bergman said Berkshire is still in a good position compared to many other companies in the market, especially other insurance companies.
"I'm expecting them to gain market share in the next couple years," Bergman said about Berkshire's insurance businesses. Berkshire's MidAmerican Energy utility unit generated $203 million net income in the quarter, down from $316 million. Many of Berkshire's other businesses, such as its jewelry stores, Shaw carpet, Acme Brick and Clayton Homes, have been hurt by the recession and corresponding slowdown in consumer spending. Berkshire's manufacturing, service and retail division generated $258 million net income in the quarter, down from $487 a year ago.
Berkshire finished the first quarter with a total of $25.6 billion cash. But Buffett has said the day after the first quarter ended, Berkshire spent $3 billion of its cash to help Dow Chemical acquire rival chemical company Rohm & Haas. Berkshire made that commitment last summer, but the Dow deal didn't close until April 1.
Berkshire owns more than 60 subsidiaries including insurance, clothing, furniture, and candy companies, restaurants, natural gas and corporate jet firms. Berkshire also has major investments in such companies as Coca-Cola Co. and Wells Fargo & Co.
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