KKR & Co., the private equity firm run by Henry Kravis and George Roberts, reported record second-quarter profit as its holdings jumped in value. The results surpassed all analysts’ estimates.
Economic net income, which includes unrealized gains, rose 65 percent to $747 million, or 88 cents a share, from $454 million, or 57 cents, a year earlier, New York-based KKR said in a statement Thursday. Analysts expected per-share results of 61 cents, according to the average of 14 estimates in a Bloomberg survey, including the highest forecast of 72 cents.
KKR benefited from unrealized gains in its portfolio, driven by stock advances at hospital operator HCA Holdings Inc., clinical-research firm PRA Health Sciences Inc., animal-food maker Pets at Home Group Plc and website platform GoDaddy Inc. The firm’s private equity portfolio appreciated 7.4 percent in the quarter, compared with 3.5 percent at Blackstone Group LP and a 0.2 percent decline in the Standard & Poor’s 500 index of large U.S. stocks.
KKR’s “returns appeared to fare better than broader indices,” Chris Harris, a Wells Fargo & Co. analyst in Baltimore, said in a note to clients before the results were announced. Harris increased his earnings projection “to account for stronger returns in private equity.”
KKR’s shares rose 2.2 percent to $24.62 at 9:38 a.m. in New York, extending gains this year to 9.8 percent, including reinvested dividends.
KKR, like Blackstone and Carlyle Group LP, broadened its business beyond traditional leveraged buyouts to manage credit assets, real estate and hedge funds. KKR, whose assets under management rose to $101.6 billion from $99.1 billion on March 31, has differentiated itself by using more of its own money in deals, allowing it to capture more profit on investments.
The value of a private equity firm’s buyout and real estate holdings affects economic net income, or ENI, because the metric in part depends on quarterly mark-to-market valuations of those investments. Accounting rules require the firms to value their portfolio holdings every quarter.
Among the biggest gainers in KKR’s portfolio was Nashville, Tennessee-based HCA, which advanced 21 percent in the quarter. The company rose 8.8 percent on June 25 after the U.S. Supreme Court upheld a key piece of President Barack Obama’s Affordable Care Act. Obamacare, as the law is known, has provided millions of paying customers for hospitals and health insurers, in part through the subsidies that were upheld.
KKR’s economic net income differs from U.S. generally accepted accounting principles. Under those standards, known as GAAP, the company had net income of $376 million, compared with $178 million a year ago.
The firm plans to pay stockholders a dividend of 42 cents a share on Aug. 18.