Shares of Kohlberg Kravis Roberts & Co. L.P. (KKR) gained 5.3% in two days’ trading following the third-quarter 2014 earnings release on Oct 23, before the market opened. The company reported adjusted economic net income per unit of 50 cents, beating the Zacks Consensus Estimate by 38.9%. However, the bottom line came in lower than the prior-year quarter figure of 80 cents.
Better-than-expected results were aided by top-line growth, partially offset by higher expenses. A consistent improvement in assets under management (AUM) and a healthy balance sheet were other highlights of the quarter.
Kohlberg Kravis’ economic net income for the quarter was $508.7 million, down from $613.7 million recorded in the prior-year quarter.
Behind the Headlines
Total revenue (GAAP basis) was $344.8 billion, surpassing the Zacks Consensus Estimate of $265 million. Moreover, revenues were up 56.7% on a year-over-year basis.
Total operating expenses climbed 10.7% to $504.4 million from the year-ago quarter. The increase was owing to a rise in general, administrative and other expenses, which were, however, partly offset by a rise in compensation & benefits, and occupancy & related charges.
Assets under Management
As of Sep 30, 2014, total AUM was $96.1 billion, up 6.6% year over year. Fee-paying AUM was $81.4 billion, improving from $73.6 billion as of Sep 30, 2013.
Capital and Liquidity
As of Sep 30, 2014, Kohlberg Kravis had $2.1 billion in cash and short-term investments. As of the same date, the company had $750 million in revolving credit facility. This does not include a $500 million revolving credit facility intended for use in its capital markets business.
Our Viewpoint
Kohlberg Kravis boasts 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 investment manager has expanded its investments in the emerging markets of Asia. We believe that this strategic move will further boost its top line in the long run.
However, due to the company’s continuous expansion of its global footprint, expenses are anticipated to rise.
Currently, Kohlberg Kravis carries a Zacks Rank #3 (Hold).
Among other investment managers, Ameriprise Financial, Inc. (AMP) and Waddell & Reed Financial, Inc. (WDR) are scheduled to release results on Oct 28, while Invesco Ltd. (IVZ) is slated to report on Oct 30.
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