Ares Capital Corporation’s (ARCC) third-quarter 2013 core earnings came in at 48 cents per share, which beat the Zacks Consensus Estimate of 39 cents. This also compared favorably with 42 cents earned in the year-ago quarter.
Better-than-expected results were primarily driven by an improvement in total investment income, partially offset by higher expenses. Rise in new investment commitments and a strong balance sheet were the other tailwinds of the quarter.
GAAP net income for the quarter came in at $140.8 million, up 3.1% from $136.6 million in the year-ago quarter.
Highlights for the Quarter
Ares Capital’s total investment income came in at $246.8 million, up 29.5% from $190.6 million in the prior-year quarter. The rise was driven by an increase in interest income and fee income. The reported figure also exceeded the Zacks Consensus Estimate of $217.0 million.
Total operating expenses in the quarter was $116.6 million, up 30.2% from $99.1 million in the year-ago period. This was due to increase in interest and credit facility fees, base management cost, incentives, administrative expense, professional fees as well as other general and administrative expenditures.
Net investment income for the quarter came in at $126.2 million, up 41.0% from $89.5 million in the year-ago quarter.
As of Sep 30, 2013, cash and cash equivalents were $135.5 million. Total debt outstanding was $3.2 billion. Further, the company has $1.1 billion available for additional borrowing as per its present credit facility.
Notably, loans on non-accrual status represented 2.0% of total investments at amortized cost.
While there were $1,132.0 million new investment commitments, the company exited $391.1 million commitments in the reported quarter.
Further, from Oct 1 to Oct 31, additional new investment commitments of $211.0 million were made. However, it exited from $91.0 million commitments during the same time frame.
As of Sep 30, 2013, Ares Capital’s total assets were $7.8 billion. Stockholders’ equity was $4.4 billion and net asset value was $16.35 per share.
Along with the earning release, Ares Capital’s board of directors declared a quarterly cash dividend of 38 cents. Additionally, a dividend of 5 cents per share was also declared. These dividends will be paid on Dec 31 to shareholders of record as of Dec 16.
Further, another dividend of 5 cents was announced. This will be paid on Mar 28, 2014 to shareholders of record as of Mar 14, 2014.
In Oct 2013, Ares Capital closed a public equity offering of 12.7 million common shares.
Other Financial Firms
American Capital Ltd.’s (ACAS) operating income lagged the Zacks Consensus Estimate. Lower top line was responsible for the lower-than-expected results.
Hercules Technology Growth Capital, Inc. (HTGC) is scheduled to report earnings on Nov 7. The Earnings ESP for the company is 0.00%. This, along with its Zacks Rank #3 (Hold), reduces the chance of an earnings beat.
Apollo Investment Corporation (AINV) is scheduled to report earnings on Nov 8. Its Earnings ESP of 0.00% and Zacks Rank #2 (Buy) reduces chances of beating the Zacks Consensus Estimate.
Given its strong liquidity position, Ares Capital is well poised to expand its portfolio. The company’s steadily growing investment commitments and solid pipeline give it a competitive edge. Further, efficient capital deployment activities make it an attractive pick for investors.
However, the uncertain economic environment along with rising expenses might limit Ares Capital’s growth, going forward.
Currently, Ares Capital carries a Zacks Rank #3.