Warren Buffett in an interview with Bloomberg in April, 2014. Over the past five decades, Mr. Buffett has built Berkshire into a sprawling operation and amassed one of the best investing records in history.Chris Goodney/Bloomberg
Berkshire Hathaway Inc. shares traded near record highs at the beginning of Warren Buffett's 50th year running the company. More recently, the stock has begun to sag.
Shares have slumped 5.2 per cent since Dec. 31 and are headed for their first annual decline since 2011, even as Mr. Buffett pulled off one of the biggest coups of his career last month. By backing H.J. Heinz's merger with Kraft Foods Group Inc., he now holds a stake valued at about $26-billion (U.S.), more than twice what he paid.
There's less to celebrate about some other Berkshire investments and businesses. "We're talking about a large, diversified portfolio of companies," said Jim Shanahan, an analyst at Edward Jones. "Some will underperform and some will outperform."
Over the past five decades, Buffett has built Berkshire into a sprawling operation and amassed one of the best investing records in history. Through 2014, the company's share price averaged annual gains that were more than double the Standard & Poor's 500 index. The equity benchmark is up 1.7 per cent this year.
Berkshire's dozens of subsidiaries include insurers, manufacturers, retailers, electric utilities and the railway BNSF. Mr. Buffett also oversees a stock portfolio valued at more than $100-billion.
The diversity of those investments could help the company post operating earnings per share of $3,038 when results are released on Friday, according to the estimates of three analysts surveyed by Bloomberg. That's a 15-per-cent increase from a year earlier.
Mr. Buffett's favoured yardstick – book value – could have risen by about 2 per cent to about $150,000 a share during the second quarter, according to an estimate from Cliff Gallant, an analyst at Nomura Holdings Inc. The billionaire Berkshire chairman and chief executive has said the metric is a good, though understated, proxy for the company's true worth. Berkshire's Class A shares closed at $214,150 on Tuesday.
Book value per share will get a boost in the current quarter as Berkshire records a gain on the bet on Kraft and Heinz, Mr. Gallant said. The food companies completed their merger in July to create Kraft Heinz Co. "It seems like he's executing," Mr. Gallant said of Mr. Buffett. "The stock price doesn't always follow that."
Berkshire faces challenges. Carloads at Buffett's railway slipped 0.1 per cent in the second quarter from a year earlier. Mr. Buffett pledged to spend $6-billion on upgrades in 2015 following delays last year that were tied to a surge in oil shipments and harsh winter weather.
Mr. Buffett has been less sanguine about the future of Berkshire's reinsurance operations. For decades, he's used the premiums held by these businesses until paying claims, called "float," to fund his stock picks and takeovers. In May, he said the prospects for that business had "turned for the worse" as hedge funds and other investors piled into the industry, driving down the price of coverage.
To counteract that trend, Berkshire has begun to focus on underwriting policies directly for businesses. The company's reinsurance chief, Ajit Jain, has been overseeing the effort even as he hunts for new deals.
Mr. Buffett has less control over the companies in his stock portfolio – and some of them have been struggling.
He invested almost $11-billion (U.S.) to amass a stake in IBM in 2011. Since then, the computer-services provider has worked to transform itself into a seller of cloud-computing technology and data analytics. Revenue has slipped for 13 straight quarters. IBM shares now trade below the price that Mr. Buffett paid to acquire them.
American Express, another of Berkshire's largest stock investments, has plunged about 19 per cent this year. It is nearing the end of a partnership with retailer Costco Wholesale Corp., a relationship that accounted for 20 per cent of worldwide loans and 8 per cent of customer spending.