(Updates with railroad in the fifth paragraph, book value in the ninth, stock portfolio in the 12th.)
Aug. 1 (Bloomberg) -- Warren Buffett’s Berkshire Hathaway Inc. said second-quarter profit rose 41 percent to a record on investments, including a gain tied to the exit of most of his stake in the former publisher of the Washington Post.
Net income climbed to $6.4 billion, or $3,889 a share, from $4.54 billion, or $2,763, a year earlier, the Omaha, Nebraska- based company said today in a statement. Operating earnings, which exclude some investment results, were $2,634 a share, beating the $2,482 estimate of three analysts surveyed by Bloomberg.
A rebounding U.S. economy has boosted the value of Berkshire’s stock portfolio and helped propel growth at the dozens of operating business that Buffett, 83, acquired during his four-decade tenure as chairman and chief executive officer. The subsidiaries include insurers, manufacturers, retailers, utilities and one of the country’s largest railroads, BNSF.
“When it’s all said and done, he has a lot of leverage to the U.S.,” said Bill Smead, chief investment officer at Smead Capital Management, which oversees about $970 million, including Berkshire stock.
BNSF contributed $916 million to quarterly earnings, compared with $884 million a year earlier as revenue climbed from hauling industrial and agricultural products. The company said service levels were “well below our internal standards, as well as those expected by our customers” as the railroad works to untangle train tie-ups that were caused by surging volumes and harsh weather.
Berkshire had a gain of $2.06 billion on derivatives and investments, driven by a share-and-asset swap with Graham Holdings Co., which sold the Post to billionaire Jeff Bezos. That compares with a gain of $622 million a year earlier.
In the swap, Buffett turned over more than $1 billion in Graham stock, allowing him to exit the holding without incurring taxes on the gain. The shares had risen more than 100-fold since he bought the stake in the 1970s. In return, Graham turned over cash, a Miami television station and Berkshire shares.
Net income for the three months ended June 30 surpassed the previous record of $5.13 billion in the fourth quarter of 2005, which was also driven by investments. In that period, Buffett recorded a gain on his holding in Gillette Co. after it merged with Procter & Gamble Co.
Berkshire’s Class A shares have risen 6.4 percent this year in New York to $189,279, beating the 4.2 percent gain in the Standard & Poor’s 500 Index. Book value, a measure of assets minus liabilities, was $142,483 as of June 30.
U.S. companies are reporting higher profits, consumer spending is picking up and the job market is strengthening as the country rebounds from the 2008 financial crisis. The gross domestic product rose at a 4 percent annualized rate in the second quarter, bouncing back after winter weather contributed to a contraction in the first three months of the year.
Those trends stand to benefit Berkshire. Most of the businesses Buffett has bought over the years are based in the U.S. and some of the largest holdings in his company’s stock portfolio -- like Wells Fargo & Co. and International Business Machines Corp. -- are American.
Berkshire’s stock portfolio was valued at $119.2 billion on June 30, up from $118.5 billion at the end of March. Cash climbed to a record $55.5 billion.
Buffett has also been adding to Berkshire’s stable of operating businesses. Last year, the energy unit bought Nevada’s largest electric utility for $5.6 billion and Buffett teamed up with buyout firm 3G Capital to take HJ Heinz Co. private.
The utility business, renamed Berkshire Hathaway Energy Co. in April, added $375 million to earnings compared with $279 million a year earlier. The investment in Heinz contributed about $152 million.
The insurance segment posted an underwriting profit of $411 million, compared with a gain of $530 million a year earlier as results weakened at the reinsurance unit led by Ajit Jain.
--With assistance from Kelly Gilblom in New York.