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Blackstone Beats on Lower Expenses

Zacks Equity Research

The Blackstone Group’s (BX) second quarter 2012 economic net income (ENI) was 19 cents per share, beating the Zacks Consensus Estimate of 13 cents. However, this significantly fell short of 73 cents recorded in the year-ago quarter.

Better-than-expected results were aided by lower expenses, which were, to some extent, offset by significant dip in top line. Moreover, robust improvement in assets under management (:AUM) was also a positive.

Blackstone’s reported ENI of $212.3 million, for the second quarter, declined substantially by 74% from $804.2 million in the year-ago quarter. The fall was primarily attributable to sluggish capital markets, which adversely affected the performance fees and investment income.

Behind the Headlines

Blackstone’s total revenue dipped 52% to $627.2 million from $1,308.3 million in the prior-year quarter. This also compares unfavorably with the Zacks Consensus Estimate of $558.0 million.

The downside in revenue was attributable to a drastic decline in performance fees, total investment loss as well as lower net management and advisory fees. However, these negatives were slightly toned down by a surge in interest and dividend revenue.

Total expenses dropped 25% year over year to $739.8 million in the reported quarter. The fall was primarily due to a sizeable cut in employee compensation and benefits expenses as well as interest expenses, which were partly offset by a rise in general, administrative and other expenses along with higher fund expenses.

Assets Under Management

As of June 30, 2012, fee-earnings AUM hiked 22% year over year to $157.6 billion, due to $44 billion of gross inflows partly offset by $13 billion of outflows. Moreover, fee-earnings AUM also surged compared with $156.3 billion as of March 31, 2012.

Despite being adversely impacted by foreign currency translation, total AUM as of June 30, 2012 was $190.3 billion, up 20% from $158.7 billion as of June 30, 2012 and 0.1% from 190.1 billion as of March 31, 2012.

Capital and Liquidity

As of June 30, 2012, Blackstone had $1.2 billion in cash and treasury cash management strategies. Furthermore, the company had no borrowings outstanding against its $1.1 billion revolving credit facility, which was amended in July 2012. The amendment extended the expiry of the facility to July 2017.

Distribution Update

Concurrent with the earnings release, Blackstone announced a quarterly distribution of 10 cents per unit. This distribution will be paid on August 31 to stockholders of record as of August 15.

Our Viewpoint

Investment appreciation in Blackstone, along with the growing need for risk management, and alternative investment solutions within the financial service industry are expected to contribute positively to the company over the long run. Nevertheless, the company’s poor performance combined with the persistent sluggish economic recovery will continue to put its financials under pressure.

Currently, Blackstone retains a Zacks #3 Rank, which translates into a short-term Hold rating.

One of the peers of Blackstone, Kohlberg Kravis Roberts & Co. (KKR) is expected to announce its second-quarter results on July 27.

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