updated 11/5/2010 9:11:17 PM ET 2010-11-06T01:11:17

Warren Buffett's company posted an 8 percent drop in third-quarter net income due to paper losses on its derivatives portfolio, but BNSF railroad and several of Berkshire Hathaway's other operating companies performed well.

Burlington Northern Santa Fe railroad added $706 million to Berkshire's bottom line in its second full quarter under Buffett's umbrella, as it again saw increases in industrial, agricultural and consumer product shipping.

Earnings reported Friday from Berkshire's manufacturing, service and retail unit — which includes such companies as Fruit of the Loom clothing and Benjamin Moore paint — nearly doubled to $645 million. Berkshire's insurance businesses, including Geico and General Re, reported a decline in both underwriting and investment income, however.

The Omaha, Neb.-based company said it earned nearly $3 billion, or $1,814 per Class A share, during the quarter ending Sept. 30. That's down from $3.24 billion, or $2,087 per share, last year. Revenue grew 21 percent in the third quarter to $36.3 billion from last year's $29.9 billion.

The biggest factor in the profit decline was a largely unrealized $95 million loss on Berkshire's derivatives, some of which are tied to equity markets and credit default swaps. Last year's third-quarter profit was boosted by a mostly unrealized $1.1 billion gain as the value of derivative contracts tied to equity indexes soared.

The true value of the derivatives won't be clear for at least several years because they don't mature until an average of 11 years from now, but Berkshire is required to estimate their value every time the company reports earnings. Buffett has told investors he believes the contracts will ultimately be profitable because the premiums are being invested.

Buffett has said Berkshire's operating earnings are a better measure of how the company is performing in any given period because those figures exclude the value of derivatives and investment gains or losses. Berkshire said its operating earnings jumped 36 percent to $2.8 billion in the quarter over last year's $2.06 billion.

On that basis, Berkshire earned $1,692 per share in the latest period. That exceeded the $1,676 per share estimated by the three analysts surveyed by Thomson Reuters.

Andy Kilpatrick, the stockbroker-author of "Of Permanent Value, the Story of Warren Buffett," said Berkshire's results looked good, but he had been expecting better numbers, especially in the insurance division.

"It's a good solid report, but I thought it was going to fire on all cylinders this quarter," Kilpatrick said.

Berkshire executives did not immediately respond to an interview request on Friday.

"We are hopeful that recent economic improvements will continue over the remainder of 2010 and beyond," Berkshire officials said in the report.

Berkshire owns clothing, insurance, furniture, utility, jewelry and corporate jet companies. Berkshire also has big investments in companies including Coca-Cola Co. and Wells Fargo & Co.

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