Shares of investment manager Fortress Investment Group LLC (FIG - Snapshot Report) rallied 1.4% after it reported fourth-quarter 2013 pre-tax distributable earnings of 24 cents per dividend paying share on Feb 27. Results were well ahead of the Zacks Consensus Estimate and year-ago figure of 20 cents.
With this, Fortress Investment delivered positive earnings surprises in 3 of the 4 quarters of 2013.
Impressive results were driven by increased revenues, lower expenses, a strong balance sheet position and improved management fee paying assets under management (AUM). However, the company witnessed a decline in revenues under its Credit Hedge Fund division and Logan Circle division.
On a GAAP basis, net income surged 43% year over year to $318 million in the reported quarter. Also, for 2013, it significantly rose to $484 million from the year-ago figure of $219 million.
For the full-year 2013, pre-tax distributable earnings were 88 cents per share, up 69% year over year. This also outpaced the Zacks Consensus Estimate of 70 cents per share.
Total revenue increased $566 million in the reported quarter from $418 million in the prior-year quarter. It also surpassed the Zacks Consensus Estimate of $239 million.
For 2013, total revenue rose 30% year over year to $1,265 million. Further, it beat the Zacks Consensus Estimate of $914 million.
Other income declined 72% year over year to $19 million.
Operating expenses declined 4% from the prior-year quarter to $243 million. This was mainly due to fall in interest expenses and employee compensation expenses.
As of Dec 31, 2013, management fee paying AUM increased 16% year over year to $61.8 billion.
As of Dec 31, 2013, total uncalled capital came in at $7.1 billion, which is available for common investment purposes.
As of Dec 31, 2013, cash and cash equivalents were $364.6 million, compared with $104.2 million as of Dec 31, 2012. Notably, there was no debt obligation outstanding in the quarter.
Capital Deployment Activities
Along with the earnings release, Fortress Investment declared fourth-quarter cash dividend of 8 cents per Class A share, representing a 33% increase from its previous pay. The dividend will be paid on Mar 14 to shareholders of record on Mar 11.
Further, subsequent to the year-end, the company repurchased around 60.6 million dividend-paying shares at a price of $6.00 per share, representing around 12% of dividend-paying shares outstanding.
According to the latest annual filling, Fortress Investment reported $3.7 million paper loss in its pilot investment in the virtual currency – Bitcoin. Notably, the investment reflects less than 1% of the $2.6 billion balance sheet of the company.
The company failed to make successful investments at a time when the digital currency is facing a setback owing to a dearth of adequate technology and absence of credible regulations.
Performance of Other Investment Managers
Among other investment management firms, The Blackstone Group L.P. (BX - Analyst Report) , BlackRock, Inc. (BLK - Analyst Report) and Invesco Ltd. (IVZ - Analyst Report) beat the Zacks Consensus Estimate in their latest earnings releases. Results benefited from top-line growth, partially offset by higher expenses. Further, all three companies recorded impressive AUM growth.
Results of Fortress Investment Group reflects a decent performance throughout the year. Further company’s consistent organic growth, expense management and a strong balance sheet are impressive. However, current macroeconomic headwinds across the industry remain a concern.