Buffett defends Berkshire's Coke stake, warns on BNSF

By Jonathan Stempel and Trevor Hunnicutt

OMAHA, Neb. (Reuters) - Warren Buffett on Saturday defended several of Berkshire Hathaway Inc's larger or struggling investments, including Coca-Cola and the BNSF railroad.

Speaking to tens of thousands of shareholders at Berkshire's annual meeting in Omaha, Nebraska, Buffett and Vice Chairman Charlie Munger also touched on many other issues including the 2016 U.S. presidential election, the risks of derivatives, and big losses at a mutual fund closely associated with Berkshire.

Buffett, a supporter of Democrat Hillary Clinton for president, was asked about the regulatory impact on Berkshire if Republican front-runner Donald Trump captures the White House.

"That won't be the main problem," he said to audience laughter, before going on to say Berkshire will "be fine" if either of the two wins.

Because the meeting fell early this year, Berkshire also released only preliminary first-quarter results, rather than full results, which the conglomerate will release on May 6.

Berkshire said net income probably rose 8 percent, helped by a gain from the swap of Procter & Gamble Co stock for the Duracell battery business.

Operating profit probably fell 12 percent, however. Buffett said BNSF was hurt by declining oil prices and coal shipments, while hailstorms caused losses in Berkshire insurance units.

"Railroad carloading throughout the industry - all of the major railroads - were down significantly in the first quarter, and probably almost certainly will continue to be down for the balance of the year," Buffett said.

Berkshire owns close to 90 businesses in energy, insurance, manufacturing, railroad, retail and other sectors, and invests well over $100 billion in stocks.

NOT WORRIED ABOUT COKE

At the meeting, Buffett and Munger fielded dozens of questions from shareholders, analysts and journalists, primarily about Berkshire companies and investments.

Buffett parried concerns raised by a shareholder, and previously by hedge fund manager William Ackman, that Berkshire's roughly 9-percent stake in Coca-Cola Co promotes health problems by selling its sugary drinks.

Buffett, who consumes 700 calories of Coke a day, said it seemed wrong to blame calories alone for rising obesity levels.

"I elect to get my 2,600 or 2,700 calories a day from thingsthat me feel good when I eat them," he said, including See's peanut brittle he munched during the meeting. "That's my sole test."

Buffett also emphasized his worry about the potential for derivatives to cause major risks for most of the world's largest banks, especially if markets were disrupted.

"It is still a potential time bomb," he said, but added that he was "not in the least troubled" by Berkshire's big stakes in Wells Fargo & Co and, through in-the-money warrants, Bank of America Corp.

Geico has also been a concern, as falling oil prices led to more driving, more accidents, and thus more loss claims. The auto insurer has raised premiums to compensate.

"There was more driving and I think there was more distracted driving, so you really had this uptick in frequency and, more importantly, in severity" of claims, he said. "I don't think you'll necessarily see the same trends this year."

Buffett also expressed support for portfolio managers of the Sequoia mutual fund, which has long invested in Berkshire and shared similar values, but suffered outsized losses when a recently retired manager took a huge stake in Canadian drug company Valeant Pharmaceuticals International Inc.

"It was a very unfortunate period when the manager got overly entranced" by a company whose business model was "enormously flawed," Buffett said.

Munger said "Valeant, of course, was a sewer," adding that its directors deserve "all the opprobrium they are getting."

EARLY WAKE-UP

Buffett also lavished praise on Mark Donegan, chief executive of Precision Castparts, which Berkshire bought in January for $32 billion and believes can now do better than on its own because it can tap Berkshire's capital base.

"Mark Donegan is an extraordinary manager. I would almost rank Mark as one of a kind," Buffett said, before joking: "If he needs capital, he's got my 800 number."

The meeting attracted people from around the world, including hundreds who waited hours in a rainstorm before doors opened at 6:20 a.m., 40 minutes early.

"I wanted to make sure I got a good seat," said Kim Baumler, an office manager for a wealth management company from Fargo, North Dakota, who said she was at the head of the line at 10:30 p.m. Friday night. "My boss is a huge Warren Buffett follower, and I got hooked. I wanted to see what it was all about."

Last year's meeting was the 50th, and Mark Hughes, a money manager from Ashton, Maryland attending his 25th meeting, said he sees no sign Buffett and Munger are winding down.

"They're 85 and 92, and look as good as they ever did," he said.

(Editing by Jennifer Ablan and Nick Zieminski)