Berkshire Hathaway Inc., the insurance and investment company run by billionaire Warren Buffett, said on Saturday fourth-quarter profit surged 54 percent, helped by a gain related to Procter & Gamble Co.’s takeover of Gillette Co.
Buffet, 75, also said the board of Berkshire Hathaway has unanimously agreed on who would succeed him if, as he put it in his annual letter to shareholders Saturday, “I should die tonight.”
But he won’t say who that is, at least publicly.
“We have three managers at Berkshire who are reasonably young and fully capably of being CEO,” Buffett said.
Buffett also said his board is prepared to oust him should the need arise “from my decay, particularly if this decay is accompanied by my delusional thinking that I am reaching new peaks of managerial brilliance.”
However, the 75-year-old chairman said, “I feel terrific.”
Higher quarterly net income
Quarterly net income for the Omaha, Nebraska-based company rose to $5.13 billion, or $3,331 per Class A share, from $3.34 billion, or $2,172, a year earlier, based on data provided in Berkshire’s quarterly and annual reports.
Per-share figures are high because Berkshire has few shares outstanding. Revenue rose 27 percent to $25.37 billion.
For all of 2005, Berkshire earnings rose to 17 percent to $8.53 billion, or $5,538 per share, as insurance premiums increased and investment gains more than tripled. Revenue rose 10 percent to $81.66 billion.
Berkshire posted a $5 billion pre-tax capital gain from Procter’s acquisition of Gillette. Berkshire had owned 9.7 percent of Gillette’s shares.
In his annual letter to Berkshire shareholders, Buffett said he has no intent to sell Procter’s shares.
Buffett’s history of success
Buffett is known around the world as the man who built a 1956 partnership of four relatives and three close friends into a holding company with total assets of $198.3 billion at the end of 2005. Berkshire owns furniture, carpet, jewelry and candy companies, restaurants, natural gas and corporate jet firms.
The question of Buffett’s successor has long been a topic of speculation. He has talked about the qualities necessary but has not mentioned names. Barron’s magazine has pointed to five people fit for the job, including David Sokol, the top man at MidAmerican Energy Holdings Co., based in Des Moines, Iowa. Berkshire owns an 80.5 percent interest in the company, Buffett said Saturday.
Buffett was recently worth $40 billion, according to Forbes magazine. Only Microsoft Corp. Chairman Bill Gates, a Berkshire director and Buffett bridge partner, was worth more.
Questions of a successor
Fitch Ratings once lowered its outlook on Berkshire Hathaway Inc.’s triple-A bond rating in part because his inevitable departure as chairman and chief executive would make it difficult for the company to sustain its current strategies.
Buffett told shareholders in his letter Saturday that the holding company’s net worth grew by $5.6 billion in 2005, which he dubbed “a decent year.”
That increased the book value — assets minus liabilities — of both classes of Berkshire stock 6.4 percent, beating the S&P gain of 4.9 percent for the year.
Losses from Hurricane Katrina
Berkshire rebounded from the hurricane losses of the third quarter by reporting net earnings of $5.13 billion for the fourth quarter on revenue of $25.37 billion. That compares with revenue of $20.53 billion and net earnings of $586 million in the third quarter. The fourth-quarter figures were more than 50 percent higher than the same quarter a year ago, when Berkshire reported $3.34 billion in net earnings.
Berkshire estimated its losses to hurricanes Katrina, Rita and Wilma at $3.4 billion. Still, Buffett said, the insurance portion of Berkshire did well as whole.
Buffett said he and the managers of his General Re and National Indemnity reinsurance operations — companies that accept insurance risks from other insurers to spread losses — know what to do about the financial fallout of such violent weather in the future.
“We’ve concluded that we should now write mega-cat (megacatastrophe) policies only at prices far higher than prevailed last year.”
Buffett did not mention the indictments of three former executives of General Re, who pleaded not guilty in February to federal fraud and conspiracy charges.
Berkshire’s Class A shares closed Friday at $87,490, and its Class B shares at $2,911.40. The Class A shares rose just 0.8 percent in 2005, while the Standard & Poor’s insurance index rose 12.5 percent.