Holding company Berkshire Hathaway (BRKB) has released its September-quarter financial results. Although the bulk of the corporation's businesses performed well (discussed below), hefty derivatives losses hurt the bottom line. For the interim, share net was $0.92, far below our $1.30 estimate and the $1.21 earned in the year-earlier period. During the quarter, the derivatives portfolio incurred a $1.59 billion loss, compared with a deficit of just $95 million in the prior-year term. In response, we now look for 2011 share earnings of $4.26, more than 6% lower than our previous call. Our 2012 share-net estimate of $5.10 remains unchanged. Berkshire stock traded modestly lower on the news.

Berkshire Hathaway owns a number of large insurance businesses and, overall, these companies performed well during the third quarter. Although premiums earned fell, year over year, insurance losses declined almost 40%. Berkshire's total insurance operation achieved an underwriting gain of $2.7 billion in the September period, versus $1.5 billion in last year's comparable quarter.

Led by the company's railroad operations, its non-insurance businesses performed well. Burlington Northern Santa Fe, which was acquired on February 12, 2010, operates more than 32,000 miles of track connecting the Midwest, the Pacific Northwest, Canada, and the Gulf of Mexico, and derives the bulk of its revenues from transporting consumer wares, industrial goods, coal, and agriculture products. In the September quarter, Burlington's top line almost reached $5.0 billion, up from less than $4.4 billion, year over year. In addition, profits advanced 8.5%, to $766 million.

Looking ahead, we continue to like Berkshire's long-term prospects. It owns dozens of profitable businesses that ought to perform well, especially if the global economy materially improves over the next several years. Furthermore, the company will likely remain active on the acquisition and share-buyback fronts. All told, we're forecasting healthy annual earnings gains to 2014-2016, and this high-quality (Safety: 1) equity possesses worthwhile appreciation potential over that time frame.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.