Fortress Beats on Earnings, Hikes Dividend - Analyst Blog

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Shares of investment manager Fortress Investment Group LLC ( FIG ) rallied 1.4% after it reported fourth-quarter 2013 pre-tax distributable earnings of 24 cents per dividend paying share on Feb 27. Results were well ahead of the Zacks Consensus Estimate and year-ago figure of 20 cents.

With this, Fortress Investment delivered positive earnings surprises in 3 of the 4 quarters of 2013.

Impressive results were driven by increased revenues, lower expenses, a strong balance sheet position and improved management fee paying assets under management (AUM). However, the company witnessed a decline in revenues under its Credit Hedge Fund division and Logan Circle division.

On a GAAP basis, net income surged 43% year over year to $318 million in the reported quarter. Also, for 2013, it significantly rose to $484 million from the year-ago figure of $219 million.

For the full-year 2013, pre-tax distributable earnings were 88 cents per share, up 69% year over year. This also outpaced the Zacks Consensus Estimate of 70 cents per share.

Business Highlights

Total revenue increased $566 million in the reported quarter from $418 million in the prior-year quarter. It also surpassed the Zacks Consensus Estimate of $239 million.

For 2013, total revenue rose 30% year over year to $1,265 million. Further, it beat the Zacks Consensus Estimate of $914 million.

Other income declined 72% year over year to $19 million.

Operating expenses declined 4% from the prior-year quarter to $243 million. This was mainly due to fall in interest expenses and employee compensation expenses.

As of Dec 31, 2013, management fee paying AUM increased 16% year over year to $61.8 billion.

As of Dec 31, 2013, total uncalled capital came in at $7.1 billion, which is available for common investment purposes.

Balance Sheet

As of Dec 31, 2013, cash and cash equivalents were $364.6 million, compared with $104.2 million as of Dec 31, 2012. Notably, there was no debt obligation outstanding in the quarter.

Capital Deployment Activities

Along with the earnings release, Fortress Investment declared fourth-quarter cash dividend of 8 cents per Class A share, representing a 33% increase from its previous pay. The dividend will be paid on Mar 14 to shareholders of record on Mar 11.

Further, subsequent to the year-end, the company repurchased around 60.6 million dividend-paying shares at a price of $6.00 per share, representing around 12% of dividend-paying shares outstanding.


According to the latest annual filling, Fortress Investment reported $3.7 million paper loss in its pilot investment in the virtual currency - Bitcoin. Notably, the investment reflects less than 1% of the $2.6 billion balance sheet of the company.

The company failed to make successful investments at a time when the digital currency is facing a setback owing to a dearth of adequate technology and absence of credible regulations.

Performance of Other Investment Managers

Among other investment management firms, The Blackstone Group L.P. ( BX ), BlackRock, Inc. ( BLK ) and Invesco Ltd. ( IVZ ) beat the Zacks Consensus Estimate in their latest earnings releases. Results benefited from top-line growth, partially offset by higher expenses. Further, all three companies recorded impressive AUM growth.

Our Viewpoint

Results of Fortress Investment Group reflects a decent performance throughout the year. Further company's consistent organic growth, expense management and a strong balance sheet are impressive. However, current macroeconomic headwinds across the industry remain a concern.

BLACKROCK INC (BLK): Free Stock Analysis Report

BLACKSTONE GRP (BX): Free Stock Analysis Report

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INVESCO LTD (IVZ): Free Stock Analysis Report

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Zacks Investment Research

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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