Berkshire Profit Benefits From Shift to Rail, Utilities

Warren Buffett’s shift toward businesses like railroads and power production that provide steady profits is paying off for his Berkshire Hathaway Inc.

Earnings from Burlington Northern Santa Fe and MidAmerican Energy Holdings accounted for $1.46 billion, or 40 percent, of operating income in the third quarter, Omaha, Nebraska-based Berkshire said in a Nov. 1 regulatory filing. The two businesses have generated at least 30 percent of profit every year since 2010, when BNSF was acquired.

The railroad and utility are “the bond-like underpinning” of earnings, said Tom Russo, a partner at Lancaster, Pennsylvania-based Gardner Russo & Gardner who oversees more than $7 billion, including Berkshire shares.

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“People’s expectations should not be that returns are going to be as good as they have been, because there’s so much capital to put to work,” said Cook, who oversees about $295 million, including Berkshire shares. “That’s not a change in Buffett’s skill. It’s a change in the capital base.”

Investing in the railroad and utilities also may have an element of “estate planning,” Russo said. Predictable profits will be helpful in ensuring payouts to the foundations to which the billionaire CEO is leaving almost all his wealth and a boon to his eventual successor, the Berkshire investor said.

Buffett is “starting to play more toward the middle of the tennis court,” Russo said. “The model is changing.”