Solid Revs Drive Blackstone's Earnings Beat

Zacks Equity Research

Significant improvement in revenues across all the segments drove The Blackstone Group L.P.’s (BX) fourth-quarter 2013 economic net income (ENI) of $1.35 cents per share. This was well ahead of the Zacks Consensus Estimate of 81 cents and compared favorably with ENI of 59 cents in the year-ago period.

Notably, the Private Equity and Real Estate segment performed remarkably well with revenues increasing 128% and 239%, respectively. The improvement was attributable to favorable investment market as well as the company’s diversified footprint.    

For the full year 2013, Blackstone recorded earnings per share of $3.07 versus $1.77 in 2012. Moreover, earnings for the year surpassed the Zacks Consensus Estimate of $2.51.

In the pre-trading session, Blackstone’s stock price shot up more than 6.0%, reflecting an overwhelming response among investors. Overall positive market sentiment could be a contributing factor toward the price appreciation. However, nothing can be inferred conclusively till we observe the company’s share price movement during the trading session.

Results benefited from growth in top line, partially offset by higher expenses. Further, a rise in assets under management (:AUM) and an improved balance sheet were the tailwinds for the quarter.

Blackstone reported ENI of $1,542.1 million, rising significantly from $670.0 million in the prior-year quarter. Moreover, for the full year, net income came in at $3,513.9 million, up from $1,995.3 million in 2012.

Behind the Headlines

Blackstone’s total revenue increased to $2,693.2 million from $1,228.7 million in fourth-quarter 2012. Moreover, it surpassed the Zacks Consensus Estimate of $1,440.0 million. The year-over-year rise was mainly due to an increase in performance fees, investment income as well as interest and dividend revenues. These positives were partially offset by decline in other revenues as well as management and advisory fees.
For the full year, total revenue was $6,611.5 million, up 62.6% from $4,066.8 million in 2012. Moreover, total revenue surpassed the Zacks Consensus Estimate of $5,034.0 million.    

However, total expenses disappointingly rose more than 100% to $1,109.9 million from the prior-year quarter figure of $542.7 million. The rise was primarily due to increase in total compensation and benefits expenses, partially offset by lower other operating expenses.
Fee-earnings AUM rose 18% from the year-ago quarter to $198.0 billion.

Total AUM as of Dec 31, 2013 was $265.8 billion, up 26% from $210.2 billion as of Dec 31, 2012. The rise was primarily driven by $60 billion of gross inflows and $38 billion of market appreciation across all asset management segments.

Capital and Liquidity

As of Dec 31, 2013, Blackstone had $2.1 billion in cash, corporate treasury and liquid investments. Moreover, the company had $8.3 billion in total cash and investments at the end of the quarter.

The company had no borrowings outstanding against its $1.1 billion revolving credit facility expiring in 2017.

Distribution Update

Along with the earnings release, Blackstone announced a quarterly distribution of 58 cents per unit, up nearly 152% from prior payout. The distribution will be exercised on Feb 18 to stockholders of record as of Feb 10.

Performance of Other Asset Managers

BlackRock, Inc.’s (BLK) adjusted earnings surpassed the Zacks Consensus Estimate owing to an improvement in AUM. T. Rowe Price Group, Inc. (TROW) and SEI Investments Co. (SEIC) also delivered positive earnings surprises on the back of higher revenues.

Our Viewpoint

The changing investor preference for alternative asset classes and other risk management will continue to boost Blackstone’s top line in the forthcoming quarters. Further, we foresee steady improvement in AUM aided by steady inflows in all the segments.

On the flip side, we are concerned about the adverse effects of the ongoing capital market volatility and stringent regulations. Both these factors could weigh on the company’s financial performance in the near term.

Currently, Blackstone carries a Zacks Rank #3 (Hold).

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