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Blackstone Beats on Higher Revenue

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The Blackstone Group’s (BX - Analyst Report) third quarter 2012 economic net income (ENI) came in at 55 cents per share, significantly beating the Zacks Consensus Estimate of 42 cents. Moreover, this compared favorably with a loss of 34 cents recorded in the year-ago quarter.

Better-than-expected results were aided by a substantial growth in top line, which was offset by higher operating expenses to an extent. Moreover, continued improvement in asset under management (AUM) and strong balance sheet were the other positives for the quarter.

Blackstone reported ENI of $621.8 million for the third quarter, rising substantially from $212.4 million in the prior quarter and economic net loss of $380.0 million in the year-ago quarter.

Behind the Headlines

Blackstone’s total revenue substantially grew to $1,223.1 million from negative revenue of $124.1 million in the prior-year quarter. This was also ahead of the Zacks Consensus Estimate of $999.0 million by 22.4%.

The improvement in revenue was attributable to a solid increase in total performance fees, total investment income as well as interest and dividend revenue and other revenue.

Total expenses also spiked 57.4% year over year to $851.4 million. The rise was primarily due to a sizeable hike in total compensation and benefits expenses along with general, administrative and other costs as well as interest expenses. However, these were partly offset by lower fund expenses.

Assets under Management

As of September 30, 2012, fee-earnings AUM hiked 26.9% year over year from $132.9 billion to $168.6 billion. The year-over-year increase was attributable to $43 billion of gross inflows partly offset by $11 billion of capital deployment activities. Moreover, fee-earnings AUM climbed 7.0% sequentially from $157.6 billion.

Total AUM as of September 30, 2012 was $204.6 billion, up 7.5% from $190.3 billion as of June 30, 2012 and 29.7% from 157.7 billion as of September 30, 2011. The rise was primarily driven by strong organic net inflows and market appreciation across all asset management segments.

Capital and Liquidity

As of September 30, 2012, Blackstone had $2.3 billion in cash and liquid investments. Moreover, the company had $6.4 billion in total cash and investments at the end of the quarter. Furthermore, the company had no borrowings outstanding against its $1.1 billion revolving credit facility, which was amended in July 2012. The amendment extended the expiry of the facility to July 2017.

Distribution Update

Concurrent with the earnings release, Blackstone announced a quarterly distribution of 10 cents per unit payable on November 30 to stockholders of record as of November 15.

Our Viewpoint

Investment appreciation in Blackstone, along with the growing need for risk management, and alternative investment solutions within the financial service industry are expected to contribute positively to the company over the long run. Moreover, its sound dividend policy will reinforce investors’ confidence. In spite of posting good results in the quarter, the persistent sluggish economic recovery will continue to keep the company’s financials under pressure in the near term.

Currently, Blackstone retains a Zacks #3 Rank, which translates into a short-term Hold rating.

One of its peers, Kohlberg Kravis Roberts & Co. (KKR - Snapshot Report) is expected to announce its third-quarter results on October 26.

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