The Blackstone Group L.P.’s (BX) third-quarter 2013 economic net income (:ENI) came in at 56 cents per share, missing the Zacks Consensus Estimate by a penny. However, this compares favorably with ENI of 55 cents recorded in the year-ago period.
Lower-than-expected results were due to a fall in top line, partially offset by lower expenses. However, strong growth in assets under management (:AUM) and an improved balance sheet were the tailwinds for the quarter.
Blackstone reported ENI of $640.2 million, rising 3% from $621.8 million in the prior-year quarter.
Behind the Headlines
Blackstone’s total revenue (GAAP basis) dropped 1% year over year to $1,216.8 million. This also lagged the Zacks Consensus Estimate of $1,266.0 million. The decline was mainly due to decrease in total performance fees and total investment income, partially offset by rise in interest and dividend revenues.
Total expense (GAAP basis) declined 8% from the prior-year quarter to $786.4 million. The fall was primarily due to decrease in total compensation and benefits expenses as well as general, administrative and other costs, partly offset by higher interest expenses.
Fee-earnings AUM rose 12% from the year-ago quarter to $188.6 billion. The growth was attributable to $41 billion of gross inflows, partially offset by $26 billion of outflows and realizations.
Total AUM as of Sep 30, 2013 was $248.1 billion, up 21% from $204.6 billion as of Sep 30, 2012. The rise was primarily driven by $53 billion of gross inflows and $25 billion of market appreciation across all asset management segments.
Capital and Liquidity
As of Sep 30, 2013, Blackstone had $2.2 billion in cash and liquid investments. Moreover, the company had $7.4 billion in total cash and investments at the end of the quarter.
The company had no borrowings outstanding against its $1.1 billion revolving credit facility expiring in Jul 2017.
Along with the earnings release, Blackstone announced a quarterly distribution of 23 cents per unit. The distribution will be paid on Nov 4 to stockholders of record as of Oct 28.
Performance of Other Asset Managers
BlackRock, Inc.’s (BLK) third-quarter 2013 adjusted earnings came in at $3.88 per share, in line with the Zacks Consensus Estimate. Further, this was up 12% from $3.47 earned in the year-ago quarter. Results benefited from rise in revenues, which were offset by higher operating expenses.
Among other asset managers, Waddell & Reed Financial, Inc. (WDR) is scheduled to report results on Oct 29 and Invesco Ltd. (IVZ) on Oct 31. Both these companies have the right combination of Zacks Earnings ESP and Zacks Rank for beating earnings this quarter. Waddell & Reed currently carries a Zacks Rank #1 (Strong Buy) and its Earnings ESP is +1.39%. Invesco currently carries a Zacks Rank #2 (Buy) and its Earnings ESP is +1.92%.
We believe that Blackstone’s diversified revenue mix and footprints as well as steadily increasing AUM will drive its growth in the future. Additionally, the improving economic conditions will aid the company’s fund raising ability, though regulatory changes would offset some of it. However, we remain concerned about the adverse effects of the present capital market volatility on the company’s financial performance in the near term.
Currently, Blackstone carries a Zacks Rank #3 (Hold).
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