Blackstone Reports in the Red

The Blackstone Group (BX - Snapshot Report) reported third quarter 2011 economic net loss of 31 cents per share, way below the Zacks Consensus Estimate of income of 5 cents and the prior-year quarter’s economic net income (ENI) of 31 cents.

Blackstone’s results were severely impacted by negative revenues due to sluggish equity markets. However, growth in assets under management (AUM) and lower operating expenses were the positives.

Blackstone reported economic net loss of $341.9 million for the third quarter compared with ENI of $339.3 million in the year-ago quarter. The loss was primarily due to market-driven declines in the carrying value of assets across the company’s investment segments, partially mitigated by the rise in management and advisory fees.

Quarter in Detail

Blackstone’s total revenue was negative $124.1 million as against the positive revenue of $784.0 million in the prior-year quarter. The downside in revenue was attributable to lower performance fees in the Private Equity, Real Estate and Credit segments and lower investment income. Total revenue also missed the Zacks Consensus Estimate of $493.0 million.

Total expenses declined 41.6% year over year to $540.9 million in the reported quarter. The decrease reflects a significant fall in employee compensation and benefit expenses, which was partially offset by a rise in general and administration expenses along with higher interest expenses.

Asset Position

Fee-earnings AUM totaled $132.9 billion as of September 30, 2011, up 27% year over year. As of September 30, 2011, total AUM stood at $157.7 billion, up 32.4% from $119.1 billion as of September 30, 2010. Net inflows and investment appreciation accounted for the improvement in both fee-earnings AUM as well as total AUM.

Capital

As of September 30, 2011, Blackstone had $1.8 billion in cash, treasury cash management strategies and liquid funds. Furthermore, Blackstone funds had $33.4 billion of committed but uninvested capital at third quarter end.

Dividend Update

Concurrent with the earnings release, Blackstone declared a quarterly distribution of 10 cents per unit to record-holders of common units at the close of business on November 15, 2011. This distribution will be paid on November 30, 2011.

Our Take

Although concerns over the sluggish economic recovery persist, Blackstone will continue benefiting from the growing need for risk management and alternative investment solutions within the financial industry.

Blackstone’s close competitor – Brookfield Asset Management Inc. (BAM - Snapshot Report) is scheduled to report its third quarter 2011 earnings on November 11.

Currently, Blackstone retains a Zacks #4 Rank, which translates into a short-term ‘Sell’ rating.

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