American Capital, Ltd. reported third-quarter 2016 net operating income per share of 15 cents, missing the Zacks Consensus Estimate by a penny. Moreover, results compared unfavorably with the prior-year quarter earnings of 28 cents.
Results were affected by lower revenues, partially offset by reduced expenses. The quarter witnessed increase in net asset value.
Net operating income plunged 55% on a year-over-year basis to $34 million.
Notably, American Capital’s merger agreement with New York-based specialty finance company – Ares Capital Corporation – which was inked in May 2016 prohibits American Capital from originating most new investments and restricts it from exiting certain investments.
During the reported quarter, American Capital recorded a net realized gain of $386 million on the sale of American Capital Mortgage Manager, LLC (ACMM) on Jul 1, 2016. The gain was fully offset by a reversal of unrealized appreciation of $386 million. Including this gain, American Capital recorded $914 million of cash proceeds from the realization of portfolio investments in the quarter.
Performance in Detail
Total operating revenue was $94 million in the quarter, plummeting 47% from the prior-year quarter. Total interest and dividend income was $86 million, down 48% year over year while fee income declined 27% year over year to $8 million.
Notably, overall decline in revenues reflected significant reduction in interest, dividend and fee income from American Capital Asset Management primarily due to the sale of ACMM. Also, the company did not record any revenues from its Senior Floating Rate Loan (SFRL) portfolio, which was sold in second-quarter 2016.
Operating expenses slumped 38% year over year to $42 million. The fall in expenses was due to lower interest expenses, reduced salaries, benefits and stock-based compensation, along with reduced European Capital management fees and general and administrative expenses.
American Capital made new investments of $9 million during the quarter, while strengthening its balance sheet.
As of Sep 30, 2016, the company’s total loans with a fair value of $181 million were on non-accrual. This represents 9.2% of total loans at fair value, compared to $161 million, or 7.4%, of total loans at fair value as of Jun 30, 2016.
NAV per share came in at $21.40 at the end of the quarter, up 5% year over year. The weighted average effective interest rate on the company’s debt investments, excluding SFRL, as of Sep 30, 2016, was 8.3%, down from 8.7% at the end of the prior-year quarter.
Results do not highlight a strong quarter for American Capital. However, we look forward to the completion of the proposed merger, anticipated to close by May 2017. We remain optimistic as the merger should enhance shareholders’ value given the steady dividend and the fee waiver support offered by Ares Capital.
AMER CAP LTD Price, Consensus and EPS Surprise
1st Constitution Bancorp (FCCY - Free Report) : The Zacks Consensus Estimate for the current quarter has increased 5% to 21 cents per share over the last 30 days. The stock also sports a Zacks Rank #1.
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