Ares Capital Corporation's ARCC second-quarter 2015 core earnings of 37 cents per share came in line with the Zacks Consensus Estimate. Additionally, earnings improved 8.8% year over year.
Results reflected rise in investment income which was offset by higher expenses. Further, reduction in new investment commitments was on the downside.
GAAP net income summed $146.5 million or 47 cents per share compared with $142.8 million or 48 cents per share in the prior-year quarter.
Performance Details
Ares Capital’s total investment income was $249.5 million, up 10.9% year over year. The rise was driven by an increase in interest income from investments, capital restructuring service fees as well as management and other fees, which were partially offset by lower dividend income and other income. Moreover, the figure surpassed the Zacks Consensus Estimate of $245 million.
Total operating expenses rose 6.4% year over year to $138.4 million. This was due to a rise in all elements of expenses except capital gains incentive fees.
Net investment income increased nearly 18% year over year to $108.5 million.
As of Jun 30, 2015, cash and cash equivalents totaled $299.1 million, up from $194.6 million as of Dec 31, 2014. Total debt outstanding was $3.6 billion, down from $3.9 billion as of Dec 31, 2014. Further, the company has $2.1 billion available for additional borrowing as per its present credit facility.
As of Jun 30, 2015, Ares Capital’s total assets amounted to $9.1 billion compared with $9.5 billion as of Dec 31, 2014. Stockholders’ equity stood relatively stable at $5.3 billion as of Jun 30, 2015 compared with Dec 31, 2015. Further, net asset value was $16.80 per share, down from $16.82 per share as of Dec 31, 2014.
Notably, loans on non-accrual status represented 1.7% of total investment at an amortized cost for the reported quarter.
Business Transactions
New investment commitments worth $820.3 million were made during the reported quarter, down from $1,018.9 million recorded in the prior-year quarter. Ares Capital exited $783.1 million of commitments in the reported quarter compared with $767.3 million in the year-ago quarter. Further, between Jul 1 and Jul 29, additional new investment commitments of $427 million were realized, while commitments worth $237 million were exited by the company.
Dividend Update
Concurrent with the earnings release, Ares Capital declared a regular quarterly dividend of 38 cents per share. The dividend will be paid on Sep 30 to stockholders of record as of Sep 15.
Our Viewpoint
We expect a rise in investment commitments to aid Ares Capital’s top-line growth in the quarters ahead. Moreover, backed by a solid liquidity position, the company may continue to enhance its portfolio.
However, the company’s failure to control expenses remains a matter of concern. Also, intensifying competition may keep the company’s fundamentals under pressure.
Currently, Ares Capital carries a Zacks Rank #3 (Hold). Among other companies in the same space, Hercules Technology Growth Capital, Inc. HTGC will report Jun-end quarter results on Aug 6, while FS Investment Corporation FSIC and Fifth Street Senior Floating Rate Corp. FSFR are scheduled to report results on Aug 10.
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