Zacks Investment Research | May 08, 2017 09:03PM ET
Fortress Investment Group LLC (NYSE:FIG) reported first-quarter 2017 pre-tax distributable earnings of 19 cents per share, missing the Zacks Consensus Estimate of 22 cents. However, the reported figure represents a year-over-year increase of 19%.
Elevated expenses were primarily responsible for the lower-than-expected results. Also, weakening balance sheet position was a headwind. However, a slight gain in revenues was a positive factor.
On a GAAP basis, net loss came in at $7 million compared with $16 million in the prior-year quarter.
Higher Expenses More than Offset Revenue Growth
GAAP total revenue for the quarter came in at $232.2 million, up slightly year over year. The increase was mainly attributable to a rise in management fees income from non-affiliates and expense reimbursements from affiliates. However, the reported figure lagged the Zacks Consensus Estimate of $258.7 million.
Other income summed $0.6 million, as against a loss of $40.2 million recorded in the prior-year quarter. This was primarily due to gains in the quarter versus losses incurred in the prior-year period. Also, lower losses from equity method investees resulted in income.
Total expenses climbed 16.8% year over year to $241.4 million. This increase was due to a rise in compensation, general and administrative costs.
As of Mar 31, 2017, assets under management (AUM) was $70.2 billion, was up nearly 1% sequentially. However, the reported figure was down slightly year over year. Also, the Logan Circle division witnessed net client outflows of nearly $0.4 billion.
Balance Sheet Position
As of Mar 31, 2017, cash and cash equivalents were $334.7 million, down from $397.1 million as of Dec 31, 2016.
As of the same date, debt obligations were $182.8 million, flat compared with the previous quarter.
Further, total uncalled capital aggregated $7.5 billion as of Mar 31, 2017, out of which approximately $4.8 billion is available for common investment purposes.
Our Viewpoint
Fortress Investment’s failure to compete with its bigger peers in the terms of AUM growth as well as its inefficient expense control mechanism are concerns.
Moreover, the company is expected to be acquired by Japan-based SoftBank Group Corp. in an all-cash deal by the second half of 2017. This makes us more apprehensive regarding its future prospects.
Fortress Investment Group LLC Price and EPS Surprise
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