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Berkshire admits BNSF standards slipped
From the Financial Times of Fri, 01 Aug 2014 22:30:36 GMT
A Burlington Northern Santa Fe (BNSF) train sits at the BNSF Alliance Intermodal facility in Haslet, Texas, U.S., on Thursday, March 8, 2012. U.S. Treasury Secretary Timothy Geithner toured the facility today during a visit to emphasize the significance of infrastructure development to American businesses. Photographer: Mike Fuentes/Bloomberg©Bloomberg

Warren Buffett’s Berkshire Hathaway said service on its US railway had fallen “below our internal standards”, after months of customer complaints and freight delays.

The business, BNSF, which operates a freight transportation network across 28 US states and into Canada, has been struggling to clear backlogs that first built up during the harsh winter.

“During the second quarter of 2014, our volumes increased but service levels continued to be well below our internal standards, as well as those expected by our customers,” Berkshire said in a regulatory filing of its latest quarterly results on Friday. “As a result, we continued to experience operating inefficiencies.”

BNSF is one of the largest rail networks in North America and has been part of Mr Buffett’s conglomerate since 2009. The company reported capital expenditures of $2.2bn for the first half of the year and promised to increase investment over the remainder of the year, hiring additional staff and buying hundreds of new engines and thousands more railcars.

The US government has required BNSF to submit weekly reports on the extent of backlogs across its network.

BNSF operating profits in the second quarter were $916m, up 3.6 per cent on the same period last year, thanks to increased shipments of industrial products.

Overall, Berkshire Hathaway reported second-quarter net earnings of $6.4bn, swollen by $2.4bn in investment gains, including on the sale of its stake in former Washington Post-owner Graham Holdings. Operating earnings were up 10.5 per cent to $4.3bn.

Berkshire’s main businesses span insurance, railways and power companies, and the group also owns retailers, industrial companies, newspapers, and a portfolio of stakes in brand-names groups such as Coca-Cola and HJ Heinz.

The company posted a 2.9 per cent increase in book value per share for the three-month period. Book value has increased 5.6 per cent since the start of the year, compared to a 5.4 per cent total return from the S&P 500 index. Mr Buffett’s one stated financial goal is to beat the return from the S&P 500 over a five-year rolling period, but last year he fell behind for the first time.

Berkshire shares are up 6.4 per cent since the start this year, compared to 4.2 per cent for the S&P 500.

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