Blackstone (BX) Tops Q2 Earnings on Strong Performance Fees

Impressive performance fees drove The Blackstone Group L.P.'s BX second-quarter 2014 economic net income ENI of $1.15 per share, which outpaced the Zacks Consensus Estimate by 64%. Also, the figure was up 85% from 62 cents earned in the prior-year quarter.

At time of writing this article, shares of Blackstone rose nearly 3% in the pre-trading session, reflecting an overwhelming investor response. Movement of the stock price after the trading session opens will give a better idea about whether Blackstone has been able to meet expectations.

Our quantitative model also conclusively projected that Blackstone would beat the Zacks Consensus Estimate, as it had the right combination of two key components – a positive Earnings ESP and a Zacks Rank #3 (Hold).

Better-than-expected results were attributable to top-line growth driven by an impressive rise in performance fees. This was, however, partly offset by higher expenses. Notably, a rise in assets under management (AUM) and an improved balance sheet were other positives.

Blackstone reported ENI of $1.32 billion, up 89% from the prior-year quarter.

Behind the Headlines

Blackstone's total revenue increased 57% year over year to $2.26 billion. The rise was mainly attributable to drastic increase in performance fees (up 95%) and total investment income (up 72%). Moreover, it surpassed the Zacks Consensus Estimate of $1.54 billion.

Total expenses rose 19% from the prior-year quarter to $1.09 billion. All the expense components increased during the quarter.

Fee-earnings AUM grew 19% from the year-ago quarter to $209.9 billion. Total AUM as of Jun 30, 2014 was $278.9 billion, up 21% year over year. The rise in AUM was primarily driven by $9.3 billion of market appreciation across all segments, partially offset by $2.2 billion of net outflows.

As of Jun 30, 2014, Blackstone had $2.7 billion in cash, corporate treasury and liquid investments. Moreover, the company had $8.6 billion in total cash and investments at the end of the quarter.

Our Viewpoint

The changing investor preference for alternative asset classes and other risk management strategies will likely continue to boost Blackstone's top line in the forthcoming quarters. Further, we foresee steady improvement in AUM backed by continued inflows in all the segments.

However, we are concerned about adverse effects of the ongoing capital market volatility and stringent regulations. These factors could weigh on the company's financial performance in the near term.

Among other asset managers, Ameriprise Financial, Inc. AMP and Invesco Ltd. IVZ are scheduled to announce results on Jul 29 and Jul 31, respectively, while Franklin Resources Inc. BEN will report third-quarter fiscal 2014 results on Jul 30.

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