Bloomberg News

Berkshire Reaps $1 Billion Burlington Payout as Freight Shipments Increase

February 27, 2012

Berkshire Hathaway Inc. (BRK/A) took a $1 billion distribution from Burlington Northern Santa Fe in the first quarter, matching the highest quarterly payout since billionaire Warren Buffett acquired the railroad in 2010.

The distribution was declared and paid this month, Burlington Northern said in a filing today. The Fort Worth, Texas-based carrier paid $2.25 billion in its first 13 months of ownership.

Buffett is reaping the benefits of an economic recovery that boosted last year’s volumes to the highest since 2008 on shipments of containerized goods and drilling-related products. Full-year operating profit rose 18 percent to $5.31 billion, from a 2010 value computed by adding profit before and after the acquisition. Carloads climbed more than 3 percent.

“The traffic’s up and the rates are holding,” said Paul Bingham, economics practice leader at consultant CDM Smith in Arlington, Virginia. Buffett, 81, has “the ability to take some more out of it than he could take in 2010.”

Fourth-quarter net income advanced 41 percent. Average revenue per carload rose to $2,003 last year from $1,786 in the period of 2010 after the Berkshire purchase. The rail carrier said volumes increased in its consumer and industrial products segments as demand for container, petroleum, sand and steel shipments gained.

Tax Benefits

Berkshire spent $26.5 billion in February 2010 to acquire the 77.5 percent of Burlington Northern it didn’t already own. After announcing the buyout, Buffett sold stakes that Omaha, Nebraska-based Berkshire had acquired in rival railroads Union Pacific Corp. (UNP) and Norfolk Southern Corp. (NSC)

Buffett has said one of the reasons he prefers takeovers to minority investments is that Berkshire pays no taxes on dividends it gets from operating businesses, which contrasts with the treatment of payouts from stocks.

“In effect, the government is our ‘partner’ twice when we own part of a business through a stock investment, but only once when we own at least 80 percent,” Buffett wrote in a letter to shareholders in 2001.

Berkshire said fourth-quarter profit fell 30 percent on smaller gains from Buffett’s portfolio of derivatives. Net income declined to $3.05 billion, or $1,846 a share, from $4.38 billion, or $2,656, a year earlier, the company said Feb. 25.

Auto, mineral and chemical shipments are fueling gains in Burlington Northern’s traffic so far this year. That includes deliveries of fracking sand to and oil out of the northern U.S. Bakken region.

‘Exploding Very Healthily’

Oil and gas-field servicing are “exploding very healthily for them,” Bingham said in a telephone interview. “In the west, I think the BN disproportionately benefits from that.”

Burlington plans to increase its capital spending 11 percent to $3.9 billion this year as the railroad adds container-shipping capacity at a new facility in Kansas City, Kansas, and improves coal routes.

The dividend paid by Burlington rose to $2 billion in the first half of last year from $1 billion in the prior six months.

An index of Burlington’s three largest publicly traded U.S. competitors has climbed 3 percent this year through last week, after advancing 10 percent in 2011.

To contact the reporter on this story: Natalie Doss in New York at ndoss@bloomberg.net; Andrew Frye in New York at afrye@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net; Ed Dufner at edufner@bloomberg.net


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