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Ares Capital's (ARCC) Q3 Earnings Beat on Lower Expenses
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Ares Capital Corporation (ARCC - Free Report) reported a positive earnings surprise of 13.2% for third-quarter 2016. Core earnings of 43 cents per share surpassed the Zacks Consensus Estimate of 38 cents. Moreover, earnings increased 4.9% from the year-ago quarter.
Better-than-expected results were primarily driven by a decline in operating expenses and a well-performing portfolio. Further, an increase in net investment income added to the positives. However, lower revenues remained the downside.
GAAP net income totaled $110.2 million or 35 cents per share, down from $116.9 million or 37 cents in the prior-year quarter.
Ares Capital’s total investment income amounted to $258.7 million, down 0.9% year over year. The fall was mainly due to a reduction in interest income from investments, and management and other fees. However, the figure surpassed the Zacks Consensus Estimate of $246.1 million.
Total operating expenses declined 9.4% year over year to $117.4 million. The fall was primarily caused by lower interest and credit facility fees, administrative fees and other general and administrative fees.
Net investment income increased 5.5% year over year to $137.7 million.
Strong Balance Sheet
As of Sep 30, 2016, the company’s cash and cash equivalents totaled $125.1 million, down from $257.1 million as of Dec 31, 2015. Total outstanding debt was $3.7 billion, down from $4.1 billion as of Dec 31, 2015. Further, the company had $1.5 billion available for additional borrowings per its present credit facility.
As of Sep 30, 2016, Ares Capital’s total assets amounted to $9.1 billion, down from $9.5 billion as of Dec 31, 2015. However, stockholders’ equity was $5.2 billion as of Sep 30, 2016, slightly up from the figure reported on Dec 31, 2015.
Further, net asset value was $16.59 per share, up from $16.46 as of Dec 31, 2015.
Notably, loans on non-accrual status represented 2.3% of total investment at an amortized cost for the reported quarter.
Portfolio Activities
New commitments worth $1529.1 million were made during the quarter, up from $1523.9 million recorded in the prior-year quarter. Ares Capital exited $1499.2 million of commitments in the quarter compared with $1340.5 million in the year-ago quarter.
Our Take
The company’s declining investment income is likely to put pressure on its bottom line, going forward. Also, intensifying competition may pose a concern for the company. However, it is expected to continue enhancing its portfolio, backed by a solid liquidity position.
Among other companies in the same space, FS Investment Corporation and Garrison Capital Inc. are both scheduled to report their Sep-end quarter results on Nov 9, while Fifth Street Asset Management Inc. is slated to report on Nov 14.
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Ares Capital's (ARCC) Q3 Earnings Beat on Lower Expenses
Ares Capital Corporation (ARCC - Free Report) reported a positive earnings surprise of 13.2% for third-quarter 2016. Core earnings of 43 cents per share surpassed the Zacks Consensus Estimate of 38 cents. Moreover, earnings increased 4.9% from the year-ago quarter.
Better-than-expected results were primarily driven by a decline in operating expenses and a well-performing portfolio. Further, an increase in net investment income added to the positives. However, lower revenues remained the downside.
GAAP net income totaled $110.2 million or 35 cents per share, down from $116.9 million or 37 cents in the prior-year quarter.
Revenues and Expenses Decline
Ares Capital’s total investment income amounted to $258.7 million, down 0.9% year over year. The fall was mainly due to a reduction in interest income from investments, and management and other fees. However, the figure surpassed the Zacks Consensus Estimate of $246.1 million.
Total operating expenses declined 9.4% year over year to $117.4 million. The fall was primarily caused by lower interest and credit facility fees, administrative fees and other general and administrative fees.
Net investment income increased 5.5% year over year to $137.7 million.
Strong Balance Sheet
As of Sep 30, 2016, the company’s cash and cash equivalents totaled $125.1 million, down from $257.1 million as of Dec 31, 2015. Total outstanding debt was $3.7 billion, down from $4.1 billion as of Dec 31, 2015. Further, the company had $1.5 billion available for additional borrowings per its present credit facility.
As of Sep 30, 2016, Ares Capital’s total assets amounted to $9.1 billion, down from $9.5 billion as of Dec 31, 2015. However, stockholders’ equity was $5.2 billion as of Sep 30, 2016, slightly up from the figure reported on Dec 31, 2015.
Further, net asset value was $16.59 per share, up from $16.46 as of Dec 31, 2015.
Notably, loans on non-accrual status represented 2.3% of total investment at an amortized cost for the reported quarter.
Portfolio Activities
New commitments worth $1529.1 million were made during the quarter, up from $1523.9 million recorded in the prior-year quarter. Ares Capital exited $1499.2 million of commitments in the quarter compared with $1340.5 million in the year-ago quarter.
Our Take
The company’s declining investment income is likely to put pressure on its bottom line, going forward. Also, intensifying competition may pose a concern for the company. However, it is expected to continue enhancing its portfolio, backed by a solid liquidity position.
ARES CAP CP Price, Consensus and EPS Surprise
ARES CAP CP Price, Consensus and EPS Surprise | ARES CAP CP Quote
Currently, Ares Capital holds a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Among other companies in the same space, FS Investment Corporation and Garrison Capital Inc. are both scheduled to report their Sep-end quarter results on Nov 9, while Fifth Street Asset Management Inc. is slated to report on Nov 14.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>.