Warren Buffett’s Berkshire Hathaway Inc. said third-quarter profit slipped 8.6 percent on investment results, including an impairment on a holding of U.K. retailer Tesco Plc.

Net income fell to $4.62 billion, or $2,811 a share, from $5.05 billion, or $3,074, a year earlier, the Omaha, Nebraska- based company said yesterday in a statement. Operating earnings, which exclude some investment results, were $2,876 a share, beating the $2,593 average estimate of three analysts surveyed by Bloomberg.

The $678 million impairment on Berkshire’s Tesco holding was a rare blunder for Buffett, who has amassed a superlative investing record during his five decades leading Berkshire. The grocer’s shares fell about 34 percent in the third quarter after the company disclosed its profit estimate was overstated.

“It’s certainly an anomaly,” said David Kass, a professor at the University of Maryland’s Robert H. Smith School of business who has taken students to meet Buffett in Omaha. “He’s not perfect, but his batting average is still high.”

Berkshire derives most of its income from dozens of operating subsidiaries like railroad BNSF, energy utilities, insurers and a range of manufacturing and retail operations. Those businesses did better in the quarter.

BNSF contributed $1.04 billion to quarterly earnings, compared with $989 million a year earlier. Results were helped by higher revenue tied to industrial and agricultural products.

Energy Business

The utility unit, renamed Berkshire Hathaway Energy Co. in April, added $697 million to earnings compared with $472 million a year earlier. The unit completed its acquisition of Nevada’s largest electric utility in December.

Earnings from manufacturing, service and retailing units increased to $1.22 billion in the third quarter from $1.06 billion a year ago. The group includes chemical company Lubrizol; parts of Marmon Holdings, a manufacturer of construction materials; and Fruit of the Loom, which makes underwear and other clothing. Berkshire doesn’t break down results for each business in the segment.

The insurance units posted an underwriting profit of $629 million, compared with $170 million a year earlier. Buffett uses the float, or premiums held at the businesses until paying claims, to buy equities. His concentrated investing approach has made Berkshire the biggest shareholder in companies including Wells Fargo & Co., Coca-Cola Co. and International Business Machines Corp.

Buffett’s Mistake

Buffett began building his Tesco holding in 2006 after the grocer announced plans for an expansion in the U.S. Tesco disclosed on Oct. 16 that Berkshire had cut its stake in the grocer below 3 percent, compared with 3.7 percent at the end of last year. Earlier last month, Buffett had called his investment in the company a “huge mistake.”

The U.K.’s Serious Fraud Office is investigating accounting practices at Tesco, the country’s biggest grocer, following the company’s announcement last month that it had overstated earnings estimates by 263 million pounds ($417 million). Eight senior managers have been suspended and Chairman Richard Broadbent has said he will step down.

Getting its profit estimate wrong was just the latest misstep for Tesco. Last year, the retailer abandoned the effort to expand in the U.S. The company has also come under pressure from cheaper German rivals Aldi and Lidl and the upscale Waitrose chain in its home market.

A year ago, Berkshire’s investment results benefited from one-time gains on stakes in Goldman Sachs Group Inc., General Electric Co. and Wm. Wrigley Jr. Co.

Stock Holdings

Berkshire’s stock portfolio was valued at $118.9 billion on Sept. 30, down from $119.2 billion at the end of June.

Profit from Berkshire’s businesses and investments continued to pile up faster than Buffett could deploy it. The company spent $2.34 billion on equities and $2.3 billion on fixed-maturity securities in the quarter.

Berkshire sold $842 million in stock and $339 million of bonds during the period. Cash rose 12 percent in the quarter to a record $62.4 billion, giving Buffett even more resources for a major acquisition.

So far, the billionaire has struck some smaller deals this year. Last month, he agreed to purchase Van Tuyl Group, a network of car dealerships for an undisclosed price. He’s also committed to help finance Burger King Worldwide Inc.’s proposed takeover of doughnut chain Tim Hortons Inc.

Climbing earnings at Berkshire’s operating businesses have helped push Class A shares up 21 percent this year in New York to $214,970, double the gain for the Standard & Poor’s 500 Index. Book value, a measure of assets minus liabilities, rose 1.4 percent in the quarter to $144,542 a share.
–With assistance from Zachary Tracer and Laura Davison in New York and Celeste Perri in Amsterdam.

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