Berkshire Expects Earnings Jump

Omaha, NE, May 6--Berkshire Hathaway chairman and Chief Executive Warren E. Buffett told shareholders Saturday that the company would have first-quarter operating earnings of about $1.7 billion, which he described as "the best operating earnings we've ever had." A year ago, Berkshire reported net income of $916 million, or $598 per class A share. Buffett also told the overflow crowd at the Omaha Civic Auditorium that Berkshire had accumulated investable cash -- or "float" as he calls it -- of $ 42.5 billion, up from about $37 billion a year ago. The company excelled largely as a result of its well-known insurance operations, which have rebounded well in the last few years and continue to be the company's mainstay. But it wasn't all good news. Buffett said the company's NetJets unit was losing money, especially in Europe, and was being hurt by a soft market for used planes that has caused it to take write-downs. But he said the unit, which offers fractional ownership of aircraft, is gaining market share and in the event that the industry undergoes a shake down "I can assure you we will not be one of the shook." He also said Berkshire's consumer businesses continued to be "very soft" and that first-quarter earnings would be down, though he didn't say by how much. Berkshire offers a host of consumer-oriented products, from kitchenware and jewelry to flooring and furniture. Buffett took time out during the annual meeting to discuss Berkshire's latest intended acquisition, that of McLane Co. Inc., a wholesale distributor of grocer items based in Temple, Texas, and owned by Wal-Mart Stores. Inc. The deal was announced Friday, with Wal-Mart, Bentonville, Ark., saying it would receive just under $1.5 billion in proceeds from the sale. McLane is one of the biggest such distributors in the U.S. It has annual sales of about $22 billion, with roughly two-thirds of that coming from outside of Wal-Mart. Buffett said McLane serves about 36,000 of the nation's 125,000 convenience stores, with average annual sales to each of them at around $300, 000. He said it also serves fast food restaurants, notably those of the Louisville, Ky.-based Yum! Brands Inc. chain, which includes KFC, Pizza Hut and Taco Bell. Buffett told shareholders that Wal-Mart, through Goldman Sachs, had approached him with the offer to buy McLane. He said a Wal-Mart executive came to Omaha a week ago Thursday to discuss the subject. The deal was concluded in an hour or two, Mr. Buffett said, and was sealed with a handshake. Buffett didn't go into details of the agreement other than to say, "Wal- Mart knows we'll be a good owner."

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