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Brookfield Beats on Higher Revenue

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Brookfield Asset Management Inc.’s third quarter 2012 net income came in at 48 cents per share, which significantly exceeded the Zacks Consensus Estimate of 25 cents. Moreover, this compared favorably with earnings of 36 cents recorded in the year-ago quarter.

The company’s better-than-expected results were aided by a decent growth in the top line and lower operating expenses to an extent. Moreover, continued improvement in asset under management (AUM) and strong balance sheet were the other positives for the quarter.

Brookfield reported funds from operations (net income prior to fair value changes, depreciation and amortization, and deferred income taxes, and includes certain disposition gains that are not otherwise included in net income as determined under IFRS) of $282 million or 40 cents per share in the quarter, expanding from $241 million or 35 cents per share in the prior-year quarter.

Behind the Headlines

Brookfield’s total revenue came in at $4,701.0 million, up 6.3% from $4423.0 million in the prior-year quarter.

Brookfield reported total return (which includes company’s share of funds from operations of $282 million, and $328 million of valuation gains, partly offset by $32 million of preferred share dividends) of $578 million in the third quarter of 2012, rising substantially from $210 million in the prior-year quarter

Total expenses inched down 1.4% year over year to $752.0 million. The fall was primarily due to a lower interest expenses. However, these were partly offset by higher operating expenses and income taxes.

As of September 30, 2012, asset under management and other services surged 22.7% year over year from $119.0 million to $146.0 million.

Further, Brookfield had $2.8 billion in cash and cash equivalents, which soared 36.2% from $2.0 billion as of December 31, 2011. Total assets as of September 30, 2012 were $100.1 billion, up 10.0% from $91.0 billion as of December 31, 2011.

Moreover, the company had $40.9 billion in total equity at the end of the quarter, up 9.3% from $37.4 billion as of December 31, 2011.

Distribution Update

Concurrent with the earnings release, Brookfield announced a quarterly distribution of 14 cents per unit payable on February 28, 2013 to stockholders of record as of February 1. The company also declared all of the regular monthly and quarterly dividends on its preferred shares.

Our Viewpoint

We believe Brookfield’s continuous acquisition activities along with the growing need for risk management and alternative investment solutions within the financial service industry will contribute positively to the company’s overall expansion going forward. Moreover, its sound dividend policy will reinforce investors’ confidence. In spite of posting good results in the quarter, the persistent sluggish economic recovery will continue to keep the company’s financials under pressure in the near term.

Currently, Brookfield retains a Zacks #3 Rank, which translates into a short-term Hold rating. However, asset mangers including The Blackstone Group LP (BX - Free Report) and BlackRock, Inc. (BLK - Free Report) retain a Zacks #2 Rank (translating into short-term Buy rating).

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