Higher expenses adversely impacted The Blackstone Group L.P.'s (BX) third-quarter 2014 economic net income (ENI) of 66 cents per share, which lagged the Zacks Consensus Estimate of 78 cents. However, the figure was up 18% from 56 cents earned in the prior-year quarter.
At time of writing this article, shares of Blackstone fell more than 3.3% in the pre-trading session, reflecting bearish investor response. Movement of the stock price after the trading session opens will provide a better idea about whether Blackstone has been able to meet expectations.
Lower-than-expected results reflected higher total expenses, partially offset by revenue growth driven by an impressive increase in performance fees. Notably, a rise in assets under management (AUM) and an improved balance sheet acted as tailwinds.
Blackstone reported ENI of $758.4 million, up 18% from the prior-year quarter.
Behind the Headlines
Blackstone's total revenue (GAAP basis) increased 38% year over year to $1.7 billion. The rise was mainly attributable to an increase in performance fees (up 65%) and total investment income (up 8%). These were, however, partly offset by lower other revenues (down 85%) and interest and dividend revenue (down 9%). However, it missed the Zacks Consensus Estimate of $2.0 billion.
Total expenses (GAAP basis) rose 34% from the prior-year quarter to $1.1 billion. All the expense components increased during the quarter.
Fee-earnings AUM grew 14% from the year-ago quarter to $214.8 billion. Total AUM as of Sep 30, 2014 was $284.4 billion, up 15% year over year. The rise in AUM was primarily driven by $34.8 billion of market appreciation across all segments and $54.8 billion of gross inflows.
As of Sep 30, 2014, Blackstone had $2.9 billion in cash, corporate treasury and liquid investments. Moreover, the company had $2.1 billion as long-term debt at the end of the quarter.
Our Viewpoint
The changing investor preference for alternative asset classes and other risk management strategies will likely continue boosting Blackstone's top line in the forthcoming quarters. Further, we foresee steady improvement in AUM, backed by continued inflows in all the segments.
However, we remain concerned about adverse effects of the ongoing capital market volatility and stringent regulations. These factors could weigh on the company's financial performance in the near term.
Currently, Blackstone carries a Zacks Rank #3 (Hold).
Among other asset managers, Ameriprise Financial, Inc. (AMP) and Waddell & Reed Financial, Inc. (WDR) are scheduled to report on Oct 28, while Invesco Ltd. (IVZ) is slated to announce results on Oct 30.
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