KKR Beats Profit Estimates as Sales Mitigate Energy Drop

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KKR Co-Founder and Co-Chairman Henry Kravis
Speaking at a Dec. 10 conference, KKR Co-Founder and Co-Chairman Henry Kravis described the drop in oil prices as “a real opportunity.” Photographer: Daniel Acker/Bloomberg

KKR & Co.’s first-quarter profit beat expectations, driven by sales of private equity holdings, even as earnings decreased after the firm marked down energy-related holdings and its loans portfolio.

Economic net income, which includes unrealized gains, fell 5.1 percent to $526 million, or 62 cents a share, from $554 million, or 77 cents, a year earlier, New York-based KKR said in a statement Thursday. The results exceeded the 52-cent average estimate of 14 analysts in a Bloomberg survey.

KKR, like peers Apollo Global Management LLC and Carlyle Group LP, has seen the plunge in oil prices take a hit on its energy holdings. The value of energy investments on KKR’s balance sheet, excluding those classified as private equity, slid to 73 cents on the dollar as of March 31 from 76 cents on Dec. 31 and $1.14 on Sept 30. The firm also marked down its collateralized loan obligations to 89 cents on the dollar from 93 cents at the end of the year.

Sales of assets were reflected in a 16 percent jump in KKR’s distributable earnings from a year earlier. Revenue came from dispositions of digital-photo company Fotolia, which Adobe Systems Inc. bought for $800 million; Big Heart Pet Brands, which was acquired by JM Smucker Co. in a $5.8 billion deal; and the firm’s stake in Alliance Boots GmbH, the drugstore chain that was purchased by Walgreen Co. KKR also sold shares in companies including Nielsen NV.

“KKR had solid levels of realization activity,” Rob Lee, an analyst at Keefe Bruyette & Woods in New York, said in an April 8 note to clients. “The pipeline for realization activity through 2015 is robust.”

Buyout Holdings

KKR rose 0.7 percent to $23.54 in New York, bringing its year-to-date gain to 1.4 percent.

The firm’s private equity holdings appreciated 5.1 percent in the quarter, compared with 4.5 percent a year ago. Blackstone Group LP, which last week reported record profit driven by sales of real estate and buyout holdings, said its private equity portfolio gained 6.4 percent in the first quarter.

KKR’s “beat was primarily driven by higher revenues, namely performance fees related to more favorable private equity marks,” Michael Kim, an analyst at Sandler O’Neill & Partners in New York, said Thursday.

The firm, led by Henry Kravis and George Roberts, managed $99.1 billion in assets as of March 31, after returning $4.8 billion to clients in the first quarter. KKR plans to pay stockholders a dividend of 46 cents a share on May 18.

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