NEW YORK – Warren Buffett, who last year generated a 24 percent return for Berkshire Hathaway Inc. (BRKA) (BRKB) shareholders, may this week tell investors and followers to lower their sights for 2007.
"That's his nature, to underpromise and overdeliver," said Whitney Tilson, who invests $150 million in hedge fund capital at New York's T2 Partners LLC. Its top holding is Berkshire.
Buffett's annual missive to Berkshire stockholders may be Corporate America's most eagerly awaited shareholder letter.
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Accompanying Berkshire's annual report, the letter offers trenchant, plain English, and often funny assessments of Berkshire businesses, and issues facing companies and the economy. Buffett even admits his own mistakes.
This year, Buffett will release the letter on Thursday after U.S. markets close, not on a Saturday morning as in prior years, Berkshire representatives said.
That's because a new rule requires big U.S. companies to file annual reports with securities regulators within 60 days after their fiscal years end. Day 60 for Berkshire is March 1.
"I'm going to miss my Saturday morning coffee with the report," said Glenn Tongue, like Tilson, a T2 managing partner.
Known as the Oracle of Omaha, Buffett has transformed Berkshire since 1965 from a failing textile company into a $165 billion conglomerate by buying out-of-favor companies with strong management and businesses, and investing in stocks.
Its 50-plus companies sell such things as Dairy Queen ice cream, Fruit of the Loom underwear and Geico car insurance — the latter now advertised by talking geckos and Little Richard.
Among Berkshire's equity holdings are Coca-Cola Co. (KO), Procter & Gamble Co. (PG), Wal-Mart Stores Inc. (WMT) and Wells Fargo & Co. (WFC).
Berkshire Class A shares closed Friday at $106,800 each. Tongue expects book value per share to top $70,000, equivalent to 17.5 percent growth.
Buffett, 76, is the world's richest person after Microsoft Corp. (MSFT) Chairman Bill Gates.
Last year, Buffett won wide praise by donating much of his wealth to the Bill & Melinda Gates Foundation.
But last week he took heat for investing in PetroChina Co. amid criticism that company's parent supports Sudan's government, which the United States accuses of genocide.
INSURANCE
Overall Berkshire results likely improved because last year's dearth of hurricanes, in contrast to Katrina and other storms a year earlier, meant lower insurance payouts.
Analysts polled by Reuters Estimates on average expect full-year profit per share, excluding investments, to rise 72 percent to about $8.62 billion, or $5,588 per Class A share.
Fourth-quarter profit per share may have risen 18 percent to $2.17 billion, or $1,410 per share, estimates show. Insurance usually generates more than half of overall profit.
"Berkshire was willing to write significant numbers of policies at attractive prices after rivals pulled out because of losses from Katrina, Rita and Wilma," said Keith Trauner, who helps invest $5.5 billion at Fairholme Capital Management in Short Hills, New Jersey, including 20 percent in Berkshire. "It has better underwriting standards than just about anyone."
In last year's letter, Buffett said: "We are quite willing to accept huge risks ... Whatever occurs, though, Berkshire will have the net worth, the earnings streams and the liquidity to handle the problem with ease."
Acquisitions may also have bolstered results. Berkshire's 2006 purchases included utility PacifiCorp, press release distributor Business Wire, apparel maker Russell Corp. and Israel's Iscar Metalworking Cos.
TRADE DEFICIT, SUCCESSION
Yet the big purchase has been elusive. Berkshire ended September with $42.25 billion of cash — which could generate more than $2 billion of annual interest at current rates.
"Buffett has said he'd rather do nothing than do something stupid," said Chad Kane, president of WoodTrust Asset Management in Wisconsin Rapids, Wisconsin, which invests $900 million and owns Berkshire stock.
Tilson added that it is tougher to buy when private equity firms and others "have enormous amounts of equity capital, combined with even larger amounts of low-cost debt capital."
Buffett may use his letter to rail again against U.S. budget and trade deficits. The latter rose 6.5 percent last year to a record $763.6 billion.
Berkshire in 2002 began betting the dollar would fall, a good bet, though it slashed its stake in foreign currency contracts to $1.1 billion by September from $13.8 billion in December 2005.
Buffett in last year's letter also said Berkshire's board had picked his successor — whom he did not name — from three internal candidates, should he die or become incapacitated. Yet Buffett has repeatedly said he loves his job.
"I expect Buffett to run this company for another 10 years, and the successor could change," Tilson said.
Until then, Buffett's annual letter will command attention.
"It's always a great read," Kane said.
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