Shares of Apollo Global Management, LLC (APO) fell 2.4% following the earnings release on Feb 5, before the markets opened. The company reported economic net income (“ENI”) of 23 cents per share, missing the Zacks Consensus Estimate of 38 cents. Further, the reported figure compared unfavorably with the ENI of $1.12 per share in the year-ago period.
For full-year 2014, the company reported ENI of $1.42 per share, compared to $5.02 per share in 2013.
Results were primarily affected by poor performance across all segments, each witnessing a decline in ENI. The fall, however, was partially offset by an ENI rise in the management business. Also, muted assets under management (“AUM”) growth dampened the results. Nevertheless, lower expenses acted as a tailwind during the quarter.
After taxes, ENI stood at $93.8.0 million in the reported quarter, plummeting 78.9% from $444 million in the prior-year quarter. For 2014, ENI after taxes came in at $567.9 million, down 71.6% year over year.
GAAP net income attributable to Apollo Global Management, LLC was $22.2 million or net profit per Class A share of 4 cents, down from $159.2 million or 94 cents per Class A share in the prior-year quarter. For 2014, the figure came in at $168.2 million or 62 cents per Class A share, down from $659.4 million or $4.06 per Class A share, recorded in 2013.
Behind the Headlines
Total revenue was $275.4 million, dropping 65% year over year. Also, it lagged the Zacks Consensus Estimate of $386.5 million. For 2014, the company reported revenues of $1.6 billion, down 58% from 2013 level.
Apollo Global’s total revenue for combined segments in the fourth-quarter amounted to $294.1 million, down 64% from the prior-year quarter. The plunge was primarily due to a decline in revenues from the Incentive Business, reflecting a $418.4 million decrease in unrealized carried interest. For 2014, the combined revenue declined 58% year over year to $1.6 billion. A decrease of $2.5 billion in total carried interest income primarily led to the fall.
Total expenses for combined segments decreased 52% year over year to $183.7 million in the reported quarter. The decline was primarily driven by a fall in profit sharing expenses resulting from the decrease in carried interest income.
Fee-earnings AUM remained relatively flat at $$128.7 billion compared with $128.4 million in the year-ago quarter. As of Dec 31, 2014, total AUM was $159.8 billion, marginally down from $161.2 billion as of Dec 31, 2013. The slight fall in total AUM was due to a decline in private equity AUM, partially offset by a rise in credit and real estate segments.
Capital and Liquidity
As of Dec 31, 2014, Apollo Global had $1.2 billion of cash and cash equivalents and $1.0 billion of debt (excluding $500 million of undrawn revolving credit facility). These amounts exclude cash and debt pertaining to Apollo Global’s consolidated funds and consolidated variable interest entities.
Distribution Update
Along with the earnings release, Apollo Global declared a quarterly cash distribution of 86 cents per Class A share. This distribution will be paid on Feb 27, 2015 to holders of record at the close of business on Feb 17.
Our Viewpoint
Recent performance keeps us apprehensive about the stock. Moreover, volatility in the capital market and strict regulatory reforms, we believe, could adversely impact the company’s performance going forward.
However, Apollo Global is poised to grow through meaningful acquisitions, strategic alliances and divestitures. Moreover, the gradual change in investors’ preference toward alternative asset classes should augur well for the company in the subsequent quarters.
Currently, Apollo Global carries a Zacks Rank #3 (Hold).
Performance of Other Asset Managers
Ameriprise Financial Inc.’s (AMP) fourth-quarter 2014 operating earnings per share of $2.30 outpaced the Zacks Consensus Estimate of $2.22, driven by robust growth in AUM and assets under administration.
BlackRock, Inc. (BLK) also reported an earnings beat attributable to strong inflows, while higher revenues drove the positive earnings surprise for SEI Investments Co. (SEIC).
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