Riding on higher management and incentive fees, Kohlberg Kravis Roberts & Co.’s (KKR) fourth-quarter 2013 net income of 89 cents per common unit beat the Zacks Consensus Estimate of 86 cents. The reported figure also compared favorably with earnings of 36 cents reported in the year-ago quarter.
Better-than-expected results were aided by top-line growth, partially offset by higher expenses. A consistent improvement in assets under management (AUM) and strong balance sheet were the other highlights of the quarter.
Kohlberg Kravis’ net income available to common shareholders was $277.9 million, up substantially from $96.7 million in the prior-year quarter.
For full-year 2013, net income per common unit came in at $2.30 per share, up from $2.21 in 2012. However, earnings for the year missed the Zacks Consensus Estimate of $2.71. Moreover, net income came in at $691.2 million, increasing 23.2% from $560.8 million in 2012.
Behind the Headlines
For 2013, total revenue was $1.03 billion, surpassing the Zacks Consensus Estimate of $981.0 million. Moreover, revenues were up 24.8% on a year-over-year basis.
In the reported quarter management and incentive fees was $211.9 million rising 35% from prior year quarter. Further, net monitoring and transaction fees was $83.7 million up 16.6% year over year.
Kohlberg Kravis’ total fee revenue increased 29.4% year over year to $295.7 million in the final quarter. However, it lagged the Zacks Consensus Estimate of $264.0 million.
Total operating expenses climbed 23.1% to $175.6 million from the year-ago quarter. The increase was owing to a rise in all the components of expense.
Assets under Management
As of Dec 31, 2013, total AUM was $94.3 billion, rising from $75.5 billion as of Dec 31, 2012. Fee paying AUM was $77.4 billion, improving from $60.8 billion as of Dec 31, 2012.
Capital and Liquidity
As of Dec 31, 2013, Kohlberg Kravis had $1.3 billion in cash and cash equivalents compared with $1.2 billion as of Dec 31, 2012. Cash and short-term investments was $2.2 billion, as against $1.5 billion as of Dec 31, 2012.
Performance of Other Asset Managers
Among other asset managers, Waddell & Reed Financial, Inc. (WDR), Affiliated Managers Group Inc. (AMG) and Ameriprise Financial, Inc. (AMP) beat the Zacks Consensus Estimate aided by top-line growth. Further, all three companies recorded impressive AUM growth.
Our Viewpoint
Kohlberg Kravis has an impressive history of growth driven by mergers and acquisitions. The investment manager will continue to exploit lucrative investment opportunities on the back of its efficient fund raising capability in the quarters ahead.
Moreover, given the sluggish economic recovery and low rate of interest in the U.S., the bank has increased its investments in the emerging markets of Asia. We believe that this strategic move will further boost the top line in the long run.
However, expenses are anticipated to rise due to the company’s continuous expansion of its global footprint.
Currently, Kohlberg Kravis carries a Zacks Rank #3 (Hold).
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