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Fortress Investment Misses on Earnings

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Fortress Investment Group LLC reported third-quarter 2013 pre-tax distributable earnings of 13 cents per dividend paying share, missing the Zacks Consensus Estimate by 4 cents. However, this compared favourably with the year-ago figure of 12 cents.

Higher revenues, lower expenses, stable balance sheet position and improved management fee paying Assets Under Management (AUM) were the positives for the quarter. However, the company’s Liquid Hedge Fund division and the Logan Circle division suffered losses.

On a GAAP basis, net income surged to $101 million from $7.0 million in the year-ago quarter.

Business Highlights

Total revenue increased 27% year over year to $232 million in the reported quarter. It also surpassed the Zacks Consensus Estimate of $215 million.

Other income rose 36% year over year to $68 million.

Operating expenses declined 17.0% from the prior-year quarter to $184 million. This was mainly due to fall in interest expenses and employee compensation expenses.

As of Sep 30, 2013, management fee paying AUM rose 13% year over year to $57.8 billion.

As of Sep 30, 2013, total uncalled capital came at $7.2 billion, which is available for common investment purposes.

Balance Sheet

As of Sep 30, 2013, cash and cash equivalents were $311.1 million, compared with $104.2 million as of Dec 31, 2012. Notably, there was no debt obligation outstanding in the quarter.

Dividend Declaration

Along with the earnings release, the company declared third-quarter cash dividend of 6 cents per Class A share. The dividend will be paid on Nov 15 to shareholders of record as of Nov 12.

Performance of Other Asset Managers

Third-quarter earnings per share of Ameriprise Financial Inc. (AMP - Free Report) outpaced the Zacks Consensus Estimate. Better-than-expected results were mainly attributable to a rise in revenues, partially offset by higher expenses.

BlackRock, Inc.’s (BLK - Free Report) third-quarter adjusted earnings were in line with the Zacks Consensus Estimate. Results on a year-over-year basis benefited from a rise in revenues, partly offset by higher operating expenses.

The Blackstone Group L.P.’s (BX - Free Report) third-quarter economic net income marginally missed the Zacks Consensus Estimate. Lower-than-expected results were due to a fall in the top line, partially offset by lower expenses.

Our Viewpoint

Fortress Investment Group’s consistent organic growth, expense management and a strong balance sheet are impressive. However, a stringent regulatory landscape remains the concern.

Currently, the company carries a Zacks Rank #4 (Sell).

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