Buffett's annual letter no longer special delivery

Billionaire Warren Buffett will likely use a few lines in his annual letter to Berkshire Hathaway shareholders to welcome new investors the company acquired along with BNSF railroad. But he'll also have to detail a busy year at the company's 80-odd subsidiaries when the letter is released this weekend. The shareholder letter Mr. Buffett writes remains one of the best-read and most-quoted business documents every year because so many people follow Mr. Buffett, the so-called Oracle of Omaha. But analyst Justin Fuller, who writes about Berkshire online at www.buffettologist.com, says the letter may be losing some of its impact because Mr. Buffett grants more interviews than he used to do. In years past, Mr. Buffett avoided interviews and public comments so the annual letters and Berkshire's shareholder meetings were about the only times investors could count on hearing from Mr. Buffett. Not anymore. "You get a lot more access to Buffett's view of the world through his various interviews," said Fuller, who works with Midway Capital Research & Management in Chicago. For example, two days after releasing his annual letter, Mr. Buffett plans to spend three hours answering questions on a cable business news network. And Mr. Buffett just did a round of interviews Monday about the lunch he auctions off for charity each year. But analysts and many investors will still be eager to read Mr. Buffett's explanation of how Berkshire's businesses fared in 2009. Investors also want to know more about what led to Berkshire's roughly $26.7 billion acquisition of Burlington Northern Santa Fe railroad, and whether Mr. Buffett will offer any new clues about his successor. Mr. Buffett's letter and Berkshire's 2009 annual report will be posted online at www.berkshirehathaway.com on Saturday morning. Many of the companies Berkshire owns have been hard hit in the recession, and units like Acme Brick, Shaw Carpet and NetJets aren't likely to improve significantly until the economy does. But even if Berkshire's retail operating businesses continued to struggle, its insurance and utility businesses will still contribute strong numbers. The insurance unit alone, which includes Geico and reinsurance giant General Re, regularly accounts for more than one-third of Berkshire's net income. And Berkshire's portfolio of derivatives contracts, some of which are tied to credit defaults and some of which are tied to equity markets will likely provide a big boost to Berkshire's reported earnings. Berkshire's derivatives contracts are all long-term bets that won't mature for years, so it won't be clear whether those deals are profitable until much later. But Berkshire is required to estimate their value each quarter, and that estimate is almost certain to be a positive force in the fourth quarter because the stock markets improved significantly last year. For instance, in last year's third quarter Berkshire recorded an unrealized $1.1 billion gain on its derivatives. Andy Kilpatrick, the stockbroker-author of "Of Permanent Value, the Story of Warren Buffett," predicted that Berkshire results will impress. "I think it's going to be good enough that some people are going to say, 'Whoa,'" Mr. Kilpatrick said. The three analysts surveyed by Thomson Reuters expect Berkshire to report fourth-quarter earnings per share of $1,208.33 on average. Those analysts also expect full year earnings per share of $4,712.47. Mr. Buffett's preferred performance measure involves comparing Berkshire's book value — assets minus liabilities — against the performance of the S&P 500 index, which Berkshire recently joined. Berkshire's book value declined in 2008 for only the second time under Mr. Buffett when it slid 9.6% to $70,350 per share. The Standard & Poor's 500 index may provide a tough comparison in 2009 because it gained 23.5% for its best showing since 2003. The three analysts surveyed by Thomson Reuters estimated that Berkshire's book value per share at the end of 2009 would be $83,391.44. Worrying about who will take over for the 79-year-old Mr. Buffett is a common pastime for Berkshire investors. Mr. Buffett has previously laid out the basics of the company's succession plan, but won't discuss details. Last year, speculation swirled around Berkshire executive David Sokol after Mr. Buffett picked Mr. Sokol to lead NetJets. Mr. Sokol was already the current chairman of Berkshire's Des Moines, Iowa-based utility company MidAmerican Energy Holdings Co. To replace Mr. Buffett, Berkshire plans to split his job into three parts — chief executive officer, chief investment officer and chairman. Mr. Buffett, however, has indicated that he has no plans to retire, and he says he loves his work and remains in good health. Morningstar analyst Bill Bergman said he thinks Berkshire's core principles and operating practices may be more well ingrained than most people realize. And Berkshire's operating subsidiaries are allowed to mostly run themselves except that Berkshire decides centrally how to invest capital. "I think the succession risk has been overplayed," Mr. Bergman said. Berkshire owns roughly 80 subsidiaries, including clothing, furniture, jewelry and corporate jet firms, but its insurance and utility businesses typically account for more than half of the company's revenue. It also has major investments in such companies as Coca-Cola Co. and Wells Fargo & Co.