Shares of Ares Capital Corporation (ARCC - Free Report) have rallied 3.2% since the release of its fourth quarter and 2017 results, early this week. The company’s fourth-quarter core earnings of 38 cents per share beat the Zacks Consensus Estimate by a penny. However, the bottom line declined 9.5% from the year-ago quarter.
Results reflected improved revenues and solid portfolio activity. However, significant increase in expenses was the headwind.
GAAP net income totaled $232 million or 54 cents per share, up significantly from $75 million or 24 cents per share in the prior-year quarter.
For 2017, core earnings of $1.39 per share were down 13.7% year over year. GAAP net income was $667 million or $1.57 per share, up from $474 million or $1.51 per share in 2016.
Revenues and Expenses Rise
Ares Capital’s total investment income amounted to $307 million, up 17.6% year over year. The rise was mainly driven by higher interest income from investments. Also, the figure surpassed the Zacks Consensus Estimate of $299 million.
Total expenses surged 49.6% year over year to $172 million. The considerable increase was primarily caused by capital gains incentive fees and higher interest and credit facility fees, base management fees and income-based fees.
Net investment income increased 1.4% year over year to $140 million.
Strong Balance Sheet
As of Dec 31, 2017, the company’s cash and cash equivalents totaled $316 million, up from $223 million as of Dec 31, 2016. Total outstanding debt was $4.9 billion, up from $3.9 billion on Dec 31, 2015.
Further, the company had $2.5 billion available for additional borrowings per its present credit facility and Small Business Administration-guaranteed debentures.
As of Dec 31, 2017, Ares Capital’s total assets amounted to $12.3 billion, up from $9.2 billion as of Dec 31, 2016. Also, stockholders’ equity was $7.1 billion as of Dec 31, 2017, up from $5.2 billion on Dec 31, 2016.
Further, net asset value was $16.65 per share, up from $16.45 as of Dec 31, 2016.
New commitments worth $1.5 billion were made during the quarter, up from $1.2 billion recorded in the prior-year quarter. Ares Capital exited $1.3 billion of commitments in the quarter compared with $1.1 billion in the year-ago quarter.
The company’s improving investment income will likely support bottom line, going forward. Further, Ares Capital is expected to continue enhancing its portfolio, backed by a solid liquidity position. However, intensifying competition may pose a concern for the company. Also, rising expenses make us apprehensive.