Ares Capital Falls on Q1 Earnings Miss, Revenues Up Y/Y - Analyst Blog

Shares of Ares Capital CorporationARCC fell nearly 2% following its first-quarter 2015 earnings release before the opening bell yesterday. Core earnings came in at 37 cents per share, down 2.6% from the year-ago quarter. Moreover, the figure lagged the Zacks Consensus Estimate of 39 cents.

Ares Capital Corporation - Earnings Surprise | FindTheCompany

Results were hampered by mounting expenses and a reduction in new investment commitments, partly offset by higher investment income.

GAAP net income summed $100.6 million or 32 cents per share, down from $117.0 million or 39 cents per share in the prior-year quarter.

Performance Details

Ares Capital's total investment income amounted to $253.2 million, up 5.6% year over year. The rise was driven by an increase in interest income from investments as well as management and other fees, partially offset by lower dividend income and other income. However, the figure lagged the Zacks Consensus Estimate of $259.6 million.

Total operating expenses rose 5.0% year over year to $128.0 million. This was due to a rise in all the elements of expenses except capital gains incentive fees as well as administrative fees.

Net investment income increased 8.3% year over year to $121.7 million.

As of Mar 31, 2015, cash and cash equivalents totaled $132.0 million, down from $194.6 million as of Dec 31, 2014. Total debt outstanding was $3.4 billion, down from $3.9 billion as of Dec 31, 2014. Further, the company has $2.2 billion available for additional borrowing as per its present credit facility.

Notably, loans on non-accrual status represented 1.7% of total investments at an amortized cost for the quarter.

Business Transactions

New investment commitments worth $500.2 million were made during the quarter, down from $852.1 billion in the prior-year quarter. Ares Capital exited $1.1 billion of commitments in the reported quarter. Further, between Apr 1 and Apr 29, additional new investment commitments of $153 million were realized, while the company exited commitments worth $180 million during the same time frame.

As of Mar 31, 2015, Ares Capital's total assets amounted to $8.9 billion compared with $9.5 billion as of Dec 31, 2014. Stockholders' equity as of Mar 31, 2015, declined marginally year over year to $5.3 billion. Net asset value stood at $16.71 per share, down from $16.82 per share as of Dec 31, 2014.

Dividend Update

Concurrent with the earnings release, Ares Capital declared a regular quarterly dividend of 38 cents per share. The dividend will be paid on Jun 30 to stockholders of record as of Jun 15.

Our Viewpoint

Though Ares Capital's first-quarter earnings were disappointing, a rise in investment commitments is expected to enhance top-line growth in the impending quarters. Moreover, the company may continue to enhance its portfolio given its solid liquidity position.

However, the company's failure to control expenses is a matter of concern. Also, intensifying competition may keep the company's fundamentals under pressure.

Currently, Ares Capital carries a Zacks Rank #2 (Buy). Among other companies in the same space, American Capital, Ltd. ACAS , Hercules Technology Growth Capital, Inc. HTGC and Fifth Street Senior Floating Rate Corp. FSFR are scheduled to report earnings results on May 6, May 7 and May 11, respectively.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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