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Warren Buffett is about to show how getting one big investment right can overshadow several laggards.

Berkshire Hathaway Inc., the sprawling conglomerate he’s overseen for five decades, is poised to report record quarterly profit on Friday because of a pretax gain of about $7 billion on a stake in Kraft Heinz Co. Buffett helped finance the merger that created the food company and Berkshire became its largest shareholder in July.

Warren Buffett Photographer: Chris Goodney/Bloomberg

The investment is a bright spot in an otherwise challenging year. Berkshire’s shares were down 9.5 percent from Dec. 31 through Friday. One of its largest units, auto insurer Geico, has struggled with rising claims costs. Its railroad, BNSF, has been spending heavily to restore service and regain market share. And some of Buffett’s biggest stock holdings -- American Express Co., International Business Machines Corp. and Wal-Mart Stores Inc. -- are tanking.

“For a guy whose reputation rests on his investing in the stock market, that’s not good,” said Cliff Gallant, an analyst at Nomura Holdings Inc. “It’s been a tough year.”

Book Value

Growth has been a challenge for the three main stocks that are slumping in Buffett’s equity portfolio. AmEx lost its biggest co-branding partner, Costco Wholesale Corp., this year and is down 21 percent through last week. IBM has fallen 13 percent as it tries to reinvent itself as a provider of cloud-computing and data-analysis services. And Wal-Mart is off 33 percent after predicting that annual profit would probably decline.

The tumbling share prices probably won’t affect Berkshire’s earnings, as long as Buffett didn’t sell any of the stock. Still, the market declines will put a dent in a metric that the billionaire Berkshire chairman holds dear: book value.

Gallant estimates that the gauge -- a measure of assets minus liabilities -- climbed 3.5 percent in the quarter to $155,000 per Class A share, largely on the gain from Kraft Heinz. Meyer Shields, an analyst at Keefe Bruyette & Woods, sees book value climbing to about $152,000 a share for the same reason. He estimates that Berkshire will post almost $9 billion in net income in the third quarter.

Buffett, 85, has long used book value as a barometer of his performance, aiming to raise the figure over time by more than the Standard & Poor’s 500 Index, including dividends.

Earlier in his career, he did that mostly by investing premiums from insurance units in stocks. More recently, he’s built up value by buying whole companies. Berkshire’s sprawling operations now include dozens of businesses from electric utilities and trucking operations to fast-food chain Dairy Queen and confectioner See’s Candies.

Some of the biggest businesses in that portfolio have struggled. After steadily adding customers for years, Geico’s underwriting profit has suffered amid an industrywide increase in the frequency and severity of car accidents. The insurer has had to raise premiums to compensate.

“They’ve been emphasizing growth,” said Shields. “Sometimes that comes with profitability challenges.”

BNSF, the largest non-insurance unit, plans to spend a record $6 billion this year on maintenance and upgrades to its network. One of its projects -- a second, parallel line on its Los Angeles-to-Chicago route -- could boost shipments of consumer products, helping the railroad deal with a slowdown in coal volumes.

Smaller Victories

Apart from the Kraft Heinz investment, Buffett has had a few smaller wins in the stock portfolio. He cut his holding in Munich Re, the world’s largest reinsurer, at a profit. Berkshire is also poised to gain from its 17 percent stake in Symetra Financial Corp., which is being acquired for $3.7 billion.

Buffett is counting on benefits from his planned takeover of Precision Castparts Corp., which makes complex metal components for the aerospace and energy industries. The deal ranks among Buffett’s largest and will add to his conglomerate’s diverse sources of earnings.

“Companies have a way of growing and doing better under Berkshire’s wing,” said James Armstrong, who oversees about $550 million including shares of Buffett’s company as president of Henry H. Armstrong Associates. Precision Castparts’ CEO has shown an ability to make acquisitions and should be able to build the business over time because he won’t have to deal with pressure from Wall Street, Armstrong said.

Oil’s Impact

Prior to the takeover announcement, Precision Castparts stock had slumped because falling oil prices hurt sales to the energy industry. The manufacturer’s profit plunged 27 percent to $343 million in the three months ended Sept. 27, compared with the year-earlier period.

When Berkshire investors look back on 2015, they’ll probably be focused on whether Buffett was able to find new ways to build value, said Nomura’s Gallant. In the third quarter alone, Berkshire announced the Precision Castparts deal and disclosed a stake of more than 10 percent in oil refiner Phillips 66.

“He’s definitely had some challenges this year, but he’s taken opportunities to invest,” said Gallant. “If you’re a shareholder, that’s what you’re hoping he would do.”

(Updates to add chart after the seventh paragraph.)