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February 27, 2017

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Buffett sees rosy prospects for US business

WARREN Buffett on Saturday mounted a forceful and upbeat defense of the prospects for American business, as his Berkshire Hathaway Inc reported a higher quarterly profit though operating income fell.

In his annual letter to Berkshire shareholders, Buffett said investors “will almost certainly do well” by staying with the long term with a “collection of large, conservatively financed American businesses.”

Buffett puts Berkshire in that category, using the letter to tout the successes of many of his Omaha, Nebraska-based conglomerate’s more than 90 operating units.

These included businesses such as the BNSF railroad and Geico auto insurance that posted weaker results last quarter.

“American business — and consequently a basket of stocks — is virtually certain to be worth far more in the years ahead,” Buffett wrote. “Ever-present naysayers may prosper by marketing their gloomy forecasts. But heaven help them if they act on the nonsense they peddle.”

For the fourth quarter, Berkshire’s net income rose to US$6.29 billion, or US$3,823 per Class A share, from US$5.48 billion, or US$3,333 per share, a year earlier, helped by a US$1.1 billion rise in gains from investments and derivatives.

Operating profit fell 6 percent to US$4.38 billion, or US$2,665 per share, from US$4.67 billion, or US$2,843 per share.

Analysts on average had forecast operating profit of US$2,716.60 per share, according to Thomson Reuters I/B/E/S.

Book value per Class A share, reflecting assets minus liabilities and which Buffett calls a good measure of Berkshire’s intrinsic worth, rose 11 percent to US$172,108.

For all of 2016, profit was virtually unchanged, dropping to US$24.07 billion from US$24.08 billion.

Operating profit rose just 1 percent to US$17.58 billion, despite January's US$32.1 billion purchase of aircraft parts maker Precision Castparts Corp, Berkshire’s largest acquisition.

Berkshire also owns stocks including Apple Inc, Coca-Cola Co, Wells Fargo & Co and the four biggest US airlines, and over one-fourth of Kraft Heinz Co.

Buffett, 86, said Berkshire still has about US$86 billion of cash and equivalents, despite recent heavy spending on Apple and airline stocks.

Quarterly profit from insurance operations rose 7 percent to US$1.44 billion, as underwriting gains at the Berkshire Hathaway Reinsurance Group more than offset a loss at auto insurer Geico, where claims for losses have been rising.

The reinsurance business is run by Ajit Jain, seen as a potential successor for Buffett as Berkshire’s CEO. Buffett said Jain has created “tens of billions of dollars of value” since joining Berkshire in 1986.


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