KKR Third-Quarter Profit Tops Estimates on Sales, First Data

  • Payment processor rose 19% in quarter, fueling gains for KKR
  • Firm sold Alliance Tire, stakes in Walgreens and Zimmer Biomet

KKR & Co. reported third-quarter profit that exceeded analysts’ expectations, fueled by gains in its biggest public holding, the payment processor First Data Corp., and the sales of stakes in other portfolio companies.

The asset manager’s economic net income, which reflects both unrealized and realized investment gains, was $598.2 million, or 71 cents a share, compared with a loss of $314.8 million a year earlier, New York-based KKR said in a statement Tuesday. The result beat the 64-cent average of 13 analyst estimates, according to data compiled by Bloomberg.

KKR, led by billionaires Henry Kravis and George Roberts, benefited from a 19 percent jump in First Data as the Atlanta-based company focuses on mobile services and customer acquisitions. KKR also sealed a string of profits by selling stakes in retailer Walgreens Boots Alliance Inc. and medical-equipment maker Zimmer Biomet Holdings Inc., as well as full dispositions of Alliance Tire Group BV and others.

“KKR reported better-than-expected earnings, with solid private equity returns and distributable earnings as highlights,” Wells Fargo & Co. analyst Chris Harris said in a note to clients Tuesday. “Distributable earnings were solid because of significant exit activity.”

Shares of KKR gained 2.8 percent to $14.88 at the close of trading in New York. That pared the stock’s loss this year to 1.1 percent, including reinvested dividends.

Distributable earnings, which reflect profits on asset sales and fund management fees, rose to $461.5 million in the quarter from $331.1 million a year earlier. KKR will draw on that pool to pay a fixed dividend of 16 cents a share on Nov. 22.

Portfolio Gains

Despite weighing down KKR’s portfolio in the first half of the year, First Data buoyed the firm’s economic net income, or ENI, in the third quarter. KKR -- which bet about $1 billion of its own money on First Data from 2007 to 2014, increasing its exposure to the business -- took the company public in 2015, eight years after acquiring it.

KKR said its private equity portfolio appreciated 5.8 percent during the three months ended Sept. 30, compared with a 3.3 percent advance in the S&P 500 index of large U.S. companies. Carlyle Group LP, Blackstone Group LP and Apollo Global Management LLC are scheduled to report third-quarter results this week.

Assets under KKR’s management totaled $131.1 billion as of Sept. 30, little-changed from the previous quarter. The firm raised $4.8 billion during the three months and distributed $8.2 billion to clients.

KKR is raising money for several investment funds, Scott Nuttall, the firm’s head of global capital and asset management, said on a conference call Tuesday with analysts and investors. Those include its main North American buyout pool, a health-care growth vehicle, a technology growth fund, its second opportunistic real estate pool, property debt vehicles and a second mezzanine credit fund.

KKR is electing not to raise a second fund for growth-equity deals in China, Nuttall said, in part because of increased competition for investments in small companies there. The firm instead will focus on larger deals and continue investing in the country out of its Asian private equity fund, he said.

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