Aided by lower expenses, Apollo Global Management, LLC (APO) reported fourth-quarter 2013 economic net income (ENI) of $1.06 per share, which easily beat the Zacks Consensus Estimate of 82 cents. However, the reported figure compared unfavorably with ENI of $1.69 in the year-ago period.
For the full year 2013, Apollo recorded ENI of $4.80 per share versus $3.82 in 2012. Moreover, earnings for the year surpassed the Zacks Consensus Estimate of $3.28.
Results benefited from lower expenses and a rise in assets under management (:AUM). However, a fall in revenues remains a concern.
GAAP net income attributable to Apollo Global Management, LLC was $159.2 million, down from $171.5 million in the prior-year quarter. For 2013, GAAP net income was $659.4 million versus $311.0 million in the prior year.
Behind the Headlines
Apollo’s total revenue was $822.5 million, down 31% from the prior-year quarter, primarily due to decline in total carried interest income. However, it surpassed the Zacks Consensus Estimate of $657.0 million.
For the full year, total revenue was $3.8 billion, up or 29% from 2012. Moreover, total revenue surpassed the Zacks Consensus Estimate of $2.7 billion.
Additionally, total expenses decreased 27% year over year to $384.9 million. The decline was primarily driven by a decrease in profit sharing expense.
Fee-earnings AUM rose 57% from the year-ago quarter to $128.3 billion.
Total AUM as of Dec 31, 2013 was $161.2 billion, up 42% from $113.4 billion as of Dec 31, 2012. The rise was primarily attributable to growth in Apollo's credit and private equity segments.
Capital and Liquidity
As of Dec 31, 2013, Apollo had $1,078 million of cash and cash equivalents and $750 million of debt (excluding a $500 million revolving credit facility that was undrawn as of Dec 31, 2013). These amounts exclude cash and debt associated with Apollo's consolidated funds and consolidated variable interest entities.
Along with the earnings release, Apollo has declared a quarterly cash distribution of $1.08 per Class A share. This comprises a regular quarterly distribution of 15 cents per Class A share and a distribution of 93 cents per Class A share attributable to additional carried interest earned by its funds through realizations and Management Business earnings. This distribution will be paid on Feb 26, 2014 to holders of record at the close of business on Feb 19, 2014.
Performance of Other Asset Managers
Among investment managers, BlackRock, Inc.’s (BLK) adjusted earnings surpassed the Zacks Consensus Estimate owing to an improvement in AUM. T. Rowe Price Group, Inc. (TROW) and SEI Investments Co. (SEIC) also delivered positive earnings surprises on the back of higher revenues.
The changing preference of investors for alternative asset classes and other risk management will continue to boost Apollo’s top line in the coming quarters. Further, we expect a consistent improvement in AUM aided by steady inflows across all the segments.
Additionally, Apollo will benefit from its strategy to tap investment opportunities other than traditional leveraged buyouts to reduce its reliance on the volatile private-equity market.
On the flip side, we are concerned about the adverse effects of the present capital market volatility and stringent regulations. Both these factors could weigh on the company’s financial performance in the near term.
Currently, Apollo carries a Zacks Rank #3 (Hold).
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