Blackstone Beats on EPS

Zacks

The Blackstone Group LP 's (BX) fourth-quarter 2012 economic net income (ENI) came in at 59 cents per share, substantially beating the Zacks Consensus Estimate of 47 cents. Moreover, this compares favorably with earnings of 42 cents recorded in the year-ago quarter.

Better-than-expected results were aided by a substantial growth in top line, which was offset by higher operating expenses to an extent. Moreover, steady asset under management (:AUM) and strong balance sheet were the other positives for the quarter.

For full year 2012, ENI came in at $1.77 per share, surpassing the Zacks Consensus Estimate of $1.63. This also compares favorably with the earnings of $1.38 in the previous year.

Blackstone reported ENI of $670.0 million, rising 43.1% from $468.2 million in the prior-year quarter. For 2012, ENI came in at $1,995.3 million, rising 29.6% from $1,539.2 million in 2011.

Behind the Headlines

Blackstone’s total revenue (GAAP basis) grew 33.0% to $1,217.1 million from $915.1 million in the year-ago quarter. This was also ahead of the Zacks Consensus Estimate of $1,101.0 million by 10.5%.

The improvement in revenue was attributable to a solid increase in total performance fees, total investment income as well as interest and dividend revenue, partly offset by a dip in other revenue.

For the full year, total revenue came in at $4,091.4 million, up 23.6% from $3,252.6 million in the previous year. Revenues for the full year reached 9.8% ahead of the Zacks Consensus Estimate of $3,661.0 million.

Total expense (GAAP basis) also inched up 1.6% year over year to $885.7 million. The rise was primarily due to a sizeable hike in total compensation and benefits expenses along with interest expenses. However, these were partly offset by lower fund expenses as well as general, administrative and other costs.

Assets Under Management

Fee-earnings AUM fell marginally 0.4% from $168.6 billion in the last quarter to $167.9 million. However, fee-earnings AUM grew 22.7% year over year from $136.8 billion. The year-over-year increase was attributable to higher gross inflows and market appreciation partly offset by outflows and realizations.

Total AUM as of Dec 31, 2012 was $210.2 billion, up 2.7% from $204.6 billion as of Sep 30, 2012 and 26.5% from 166.2 billion as of Dec 31, 2011. The rise was primarily driven by strong organic net inflows and market appreciation across all asset management segments.

Capital and Liquidity

As of Dec 31, 2012, Blackstone had $2.3 billion in cash and liquid investments. Moreover, the company had $6.7 billion in total cash and investments at the end of the quarter. Furthermore, the company had no borrowings outstanding against its $1.1 billion revolving credit facility, which was amended in Jul 2012. The amendment extended the expiry of the facility to Jul 2017.

Distribution Update

Concurrent with the earnings release, Blackstone announced a quarterly distribution of 42 cents per unit payable on Feb 19 to stockholders of record as of Feb 11.

Performance of Other Asset Mangers

T. Rowe Price Group, Inc. (TROW) reported its fourth-quarter 2012 earnings, a penny below the Zacks Consensus Estimate. Elevated operating expenses were the primary reasons for the earnings miss.

BlackRock, Inc.'s (BLK) fourth-quarter 2012 adjusted earnings substantially surpassed the Zacks Consensus Estimate. The improvement was primarily attributable to increased top line, partly offset by higher operating expenses.

Waddell & Reed Financial, Inc.’s (WDR) fourth-quarter 2012 earnings from continuing operations were slightly ahead of the Zacks Consensus Estimate. Better-than-expected results benefited from augmented top line, partially offset by higher expenses.

Our Viewpoint

Investment appreciation in Blackstone, along with the growing need for risk management and alternative investment solutions within the financial service industry, is expected to contribute positively to the company over the long run.

Moreover, its sound dividend policy will reinforce investors’ confidence. In spite of posting good results in the quarter, the persistent sluggish economic recovery will continue to keep the company’s financials under pressure in the near term.

Currently, Blackstone retains a Zacks Rank #3 (Hold).

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