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Berkshire profit climbs 9.8% on insurance investments, railroad

BC-BRK-EARNS c.2015 Bloomberg News By Noah Buhayar and Sonali Basak (Bloomberg) - Warren Buffett's Berkshire Hathaway said first-quarter profit climbed 9.8 per cent on higher investment income at insurance operations and results from the BNSF railroad.

[NEW YORK] Warren Buffett's Berkshire Hathaway said first-quarter profit climbed 9.8 per cent on higher investment income at insurance operations and results from the BNSF railroad.

Net income rose to US$5.16 billion, or US$3,143 per share, from US$4.71 billion, or US$2,862, a year earlier, Omaha, Nebraska-based Berkshire said Friday in a statement. Operating earnings, which exclude some investment results, were US$2,583 per share, beating the US$2,373 estimate of three analysts surveyed by Bloomberg.

Investors are gathering in Omaha this weekend for Berkshire's annual meeting and to help Buffett, 84, celebrate his golden anniversary running the company. When he took control five decades ago, it was a struggling textile maker. He gradually transformed Berkshire into a sprawling conglomerate with operations that now include insurers, utilities, manufacturers, retailers and one of the largest US railroads.

"He's got good, capable managers" running a stable of profitable businesses, said Cliff Gallant, an analyst at Nomura Holdings Inc. "His high-class problem is figuring out what to do with the cash." Profit was helped in last year's first quarter by a one- time gain of about US$900 million on Phillips 66 stock. Berkshire swapped the shares during that period for one of the oil refiner's businesses. The transaction was designed to limit Berkshire's tax bill on its investment gain.

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It also fit in with Buffett's strategy to own more businesses outright. In the earlier part of his career, he built Berkshire's value by having insurance units invest in stocks like Coca-Cola Co and Washington Post Co that later surged.

The mix of subsidiaries at Berkshire gives it broad exposure to the US economy. The billionaire has frequently highlighted the prospects for businesses in the country, and wrote in a letter to shareholders in February that its market economy would "continue to work its magic." He cautioned that the gains wouldn't come in a smooth manner.

Recent data suggest the US is hitting some speed bumps. Gross domestic product sputtered to a near halt in the first quarter, expanding at a 0.2 per cent annualised pace, Commerce Department figures showed Wednesday in Washington. The weaker- than-forecast result was driven by severe winter weather and a slump in exports and business spending.

Berkshire is showing little sign of pulling back. The company's US$15 billion outlay on plant and equipment in 2014 set a record, and Buffett said there will be more opportunities to spend in the US this year. The capital budget at the railroad alone is US$6 billion in 2015.

The billionaire also continues to buy more businesses. Last year, he agreed to purchase Van Tuyl Group, a network of car dealerships, as well as battery-maker Duracell.

Packaged Foods And he's been using Berkshire's cash hoard to help finance deals. In 2013, he partnered with buyout firm 3G Capital to take ketchup maker H.J. Heinz private. Then, in March, Heinz announced that it was buying Kraft Foods Group Inc. with stock and US$10 billion in additional funds from Berkshire and 3G.

The transaction is poised to create a packaged-food colossus with more than US$25 billion in revenue. Buffett's firm will own a little more than a quarter of the business.

The deals have been a bright spot for Berkshire even as some of Buffett's stock picks faltered. American Express Co and International Business Machines Corp, two of the biggest holdings, have slipped more than 10 per cent in the last year. Coke is little changed in the last 12 months.

Berkshire's own shares have come down from their record high in December. Class A shares have slipped 4.5 per cent to US$215,800 from the end of last year.