Private equity firm and global asset manager,
American Capital, Ltd.
) reported second-quarter 2014 net operating income per share of 9
cents, significantly lagging the Zacks Consensus Estimate of 20
cents. Moreover, results compared unfavorably with the
prior-quarter earnings of 16 cents.
Results were impacted by a disappointing top-line performance,
partially offset by lower expenses. However, new investments and
realization from portfolios were the positives.
Net operating income for the quarter came in at $26 million, down
47% year over year. Net earnings stood at $212 million or 76 cents
per share, compared with $21 million or 7 cents per share in the
American Capital, Ltd - Earnings Surprise |
Quarter in Detail
Total operating revenue was $100 million in the quarter, down 23%
from the prior-year quarter. The decline was primarily due to lower
interest and dividend income, partially offset by higher fee
income. Also, operating revenue lagged the Zacks Consensus Estimate
of $115 million.
Total interest and dividend income was $83 million, down 35% year
over year. However, fee income increased 42% year over year to $17
Operating expenses declined 9% year over year to $59 million. The
fall in expenses was primarily due to lower salaries, benefits and
stock-based compensation as well as decreases in general and
American Capital's asset coverage ratio increased to 593% in the
quarter from 528% in the prior quarter. The company made new
investments of $813 million during the quarter while strengthening
its balance sheet. Moreover, the company recorded $408 million of
cash proceeds from the realization of portfolio investments.
As of Jun 30, 2014, non-accrual loans were $299 million,
representing 7.5% of total loans at fair value, down from $315
million and 9.7% as of Mar 31, 2014. Net asset value (NAV) per
share came in at $21.12, up 17% or 83 cents per share (annualized)
from $19.29 as of Mar 31, 2014. The weighted average effective
interest rate on the company's debt investments as of Jun 30, 2014
was 7.8%, down from 9.1% at the end of the prior quarter.
Given the company's current performance track, management intends
to separate investments from the asset management business. Such a
proposal is expected to be put forward to the board of directors in
In spite of the volatile capital markets affecting valuations of
the investment portfolio in the quarter, the overall underlying
performance of American Capital's portfolio companies continue to
remain positive. Also, we are encouraged by the company's continued
efforts in balance sheet repositioning.
Further, during the quarter, American Capital obtained $750 million
senior secured revolving credit facility, which enhances the
company's financial flexibility to invest in senior secured
floating rate loans. This is expected to boost net operating income
in the upcoming quarters, if utilized properly.
Though the improved portfolio performance is expected to continue
with the economic recovery, we believe the low interest rate
environment and global cues will act as headwinds in the upcoming
Currently, American Capital carries a Zacks Rank #4 (Sell). Some
better-ranked companies in the finance sector include
AllianceBernstein Holding L.P. (
), Capital One Financial Corporation (
) and Piper Jaffray Companies (
). All these companies carry a Zacks Rank #1 (Strong Buy).
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