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updated: 11/1/2013 5:21 PM

Berkshire profit advances 29 percent on gains at railroad, investments

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  • Associated Press/May 6, 2013Warren Buffett smiles during an interview with Liz Claman of the Fox Business Network in Omaha, Neb. The Berkshire Hathaway company reported quarterly earnings on Friday.

      Associated Press/May 6, 2013Warren Buffett smiles during an interview with Liz Claman of the Fox Business Network in Omaha, Neb. The Berkshire Hathaway company reported quarterly earnings on Friday.

 
Bloomberg News

Berkshire Hathaway Inc., the company run by billionaire chairman Warren Buffett, said third-quarter profit climbed 29 percent on investments and gains at railroad Burlington Northern Santa Fe.

Net income rose to $5.05 billion, or $3,074 a share, from $3.92 billion, or $2,373, a year earlier, the Omaha, Nebraska- based company said today in a statement. Operating earnings, which exclude some investment results, were $2,228 a share, missing the $2,403 average estimate of 3 analysts surveyed by Bloomberg.

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Berkshire has benefited from an expanding U.S. economy and stands to make further gains as consumer demand picks up and the housing market recovers. The company's subsidiaries haul freight, insure cars, generate electricity, make building supplies and sell products from running shoes to diamond rings.

Acquisitions and investments have positioned Berkshire to be "an all-in bet on the U.S.," said Bill Smead, chief executive officer of Smead Capital Management, which oversees about $680 million including shares of Buffett's company. "There's a lot of earnings leverage."

Class A shares climbed 0.1 percent to $173,123 at 4:15 p.m. in New York, extending their advance to 29 percent this year. That compares with the 24 percent gain in the Standard & Poor's 500 Index.

The U.S. economy probably expanded at a 1.9 percent annualized rate in the third quarter, according to the average estimate in a Bloomberg survey. That's slower than the 2.5 percent pace in the three months ended June 30.

The housing market rebound cooled in July and August as expectations that the Federal Reserve would begin to wind down its record stimulus sent mortgage rates higher. Buffett said last week that the U.S. economy is making progress and that residential real estate still has to a way to go in recovering.

'Coming Back'

"It's coming back," he said at an Oct. 23 event at the New York Public Library. "Pricing is better in almost all markets by a reasonable percentage from a few years ago. Housing starts are up somewhat. They still are not where I would regard as an equilibrium point, where they match household formation."

Cash continues to pile up at Berkshire even as Buffett, 83, and his deputies make acquisitions. The company committed $5.6 billion to buy a Nevada electric utility in May and spent $12.3 billion in a transaction that took HJ Heinz Co. private in June. The deal for the ketchup maker included preferred shares that pay $720 million in dividends a year.

That helps replace investment income lost as Buffett's earlier bets are wound down. Last month, Mars Inc. retired $4.4 billion in bonds with an 11.45 percent coupon that Berkshire bought to help the candy company acquire Wm. Wrigley Jr. Co.

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