KKR Earnings: Still Exceeds Expectations Despite 23% Decline in Distributable Earnings
There was little in narrow-moat KKR’s KKR second-quarter results that would alter our long-term view of the firm. We expect to leave our $59 fair value estimate in place. We view the shares as fairly valued right now.
KKR closed the June quarter with $420.0 billion in fee-earning assets under management, up 1.0% sequentially and 9.2% year over year. Adjusted net inflows of $3.6 billion were in line with our expectations but still below the quarterly run rate for flows of $15.3 billion over the previous eight calendar quarters. KKR raised $12.8 billion in new capital during the quarter, with $9.6 billion of existing capital deployed, and it closed out the period with uncalled commitments at $100.1 billion.
Total revenue increased to $3.6 billion in the quarter (from $323 million in the year-ago period) as both asset management and insurance segment revenues were up meaningfully year over year. Management fee revenue was up 22.6% year over year, and KKR also reported a large increase in capital allocation-based income, which lifted overall asset management revenue to $1.5 billion from negative $308 million in the prior-year period. Insurance segment revenue increased to $2.2 billion from $632 million in the year-ago period, primarily due to growth in earned premiums and meaningfully higher investment income year over year.
Fee-related earnings (which measure profits from revenue received on a recurring basis and not subject to future realization events) of $602 million rose 30.5% year over year from $461 million in the year-ago quarter, while aftertax distributable earnings (which remove the effects of unrealized activity) of $653 million, or $0.73 per share, represented a 23.3% decline from the year-ago quarter’s results of $851 million, or $0.96 per share. However, this was slightly better than the FactSet consensus estimate of $0.71 per share.
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