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Ares Capital (ARCC) Q4 Earnings Top on Lower Expenses

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Ares Capital Corporation's (ARCC - Free Report) fourth-quarter 2015 core earnings of 40 cents per share outpaced the Zacks Consensus Estimate by a penny. However, earnings fell 5% year over year.


Ares Capital Corporation (ARCC - Free Report) EPS BNRI & Surprise Percent - Last 5 Quarters | FindTheCompany

For 2015, core earnings were $1.54 per share, which surpassed the Zacks Consensus Estimate by a penny. However, the figure declined from $1.55 recorded in 2014.

Better-than-expected results reflected a rise in net investment income as well as lower operating expenses. However, weakness in new commitments acted as a headwind.

GAAP net income summed $14.7 million or 5 cents per share, down from $153.4 million or 49 cents in the prior-year quarter. Moreover, for 2015, GAAP net income came in at $378.7 million or $1.20 per share, down from $591.0 million or $1.94 per share in 2014.

Performance Details

Ares Capital’s total investment income amounted to $261.7 million, down 3% year over year. The fall was driven by lower capital structuring service fees, management and other fees as well as other income, which was partially mitigated by higher interest income from investments and dividend income. However, the figure surpassed the Zacks Consensus Estimate of $256.3 million.

For 2015, total investment income was $1.03 billion, up 4% year over year. Moreover, the figure outpaced the Zacks Consensus Estimate of $1.01 billion.

Total operating expenses fell 26% year over year to $103.8 million. The decline was attributable to a reduction in all expense components.

Net investment income climbed 15% year over year to $147.1 million.

As of Dec 31, 2015, the company’s cash and cash equivalents totaled $257.1 million, up from $194.6 million as of Dec 31, 2014. Total outstanding debt was $4.1 billion, up from $3.9 billion as of Dec 31, 2014. Further, the company has $1.4 billion available for additional borrowing as per its present credit facility.

As of Dec 31, 2015, Ares Capital’s total assets amounted to $9.5 billion, marginally up from the Dec 31, 2014 level. However, stockholders’ equity declined 2% year over year to $5.2 billion as of Dec 31, 2015.

Further, net asset value was $16.46 per share, down from $16.82 per share as of Dec 31, 2014.

Notably, loans on non-accrual status represented 2.6% of total investment at an amortized cost for the reported quarter.

Portfolio Activities

New commitments worth $972.2 million were made during the reported quarter, down from $1,389.5 million recorded in the prior-year quarter. Ares Capital exited $569.1 million of commitments in the quarter compared with $1,269.1 million in the year-ago quarter.

Further, between Jan 1 and Feb 18, additional new investment commitments of $338 million were realized, while commitments worth $339 million were exited by the company.

Capital Deployment Activities

During the fourth quarter, Ares Capital repurchased 121,621 shares for $1.7 million. Also, the company announced a first-quarter dividend of 38 cents per share, which will be paid on Mar 31 to stockholders of record as of Mar 15.

Our Take

While strong net investment inflows, solid core results and a relatively small decline in NAV per share relative to peers remain the positives for Ares Capital, the company is expected to continue to enhance its portfolio backed by a solid liquidity position. However, intensifying competition may exert pressure on the company’s fundamentals.

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

Among other companies in the same space, FS Investment Corporation , Garrison Capital Inc. (GARS - Free Report) and Fifth Street Asset Management Inc. will report December-end quarter results on Feb 29, Mar 2 and Mar 17, respectively.

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