Shares of KKR & Co. L.P. (KKR) lost nearly 3% following the fourth-quarter 2014 earnings release, which reflected weakness owing to a significant decline in investment income. The company reported adjusted economic net income per unit of 5 cents, substantially missing the Zacks Consensus Estimate of 40 cents. Moreover, the bottom line came in lower than the prior-year quarter figure of $1.04.
For full-year 2014, economic net income per unit stood at $1.84 per share, down 35% year over year. Moreover, this lagged the Zacks Consensus Estimate of $2.21.
Results suffered due to subdued top-line growth. Also, elevated expenses further weighed on the results. However, consistent improvement in assets under management (AUM) and a healthy balance sheet continued to be the positive factors.
Kohlberg Kravis’ economic net income for the quarter totaled $86.6 million, down 89% year over year. For 2014, economic net income came in at $1.73 billion, down 21% year over year.
Behind the Headlines
Total revenue (GAAP basis) amounted to $212.9 billion, down 5% on a year-over-year basis. Moreover, this lagged the Zacks Consensus Estimate of $261 million.
For 2014, total revenue (GAAP basis) climbed 46% year over year to $1.11 billion. Moreover, it surpassed the Zacks Consensus Estimate of $1.09 billion.
Total operating expenses rose 9% year over year to $633.2 million. The increase was driven by higher general, administrative and other expenses, which were, however, partially offset by a reduction in compensation & benefits costs.
Assets under Management
As of Dec 31, 2014, total AUM grew 5% year over year to $98.6 billion. Moreover, fee-paying AUM summed $83.0 billion, improving 7% from the Dec 31, 2013 figure.
Capital and Liquidity
As of Dec 31, 2014, Kohlberg Kravis had $1.1 billion in cash and short-term investments. As of the same date, the company had $1.0 billion in revolving credit facility. This does not include a $500 million revolving credit facility intended for use in its capital markets business, out of which, $27.0 million had been drawn as of Dec 31, 2014.
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. Also, the prevalent unfavorable operating environment has started taking a toll on the company’s profitability.
Currently, Kohlberg Kravis carries a Zacks Rank #3 (Hold).
Among other investment managers, AllianceBernstein Holding L.P. (AB), Brookfield Asset Management Inc. (BAM) and Fortress Investment Group LLC (FIG) are scheduled to release their fourth-quarter 2014 results on Feb 12, Feb 13 and Feb 26, respectively.
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