NEW YORK/PHILADELPHIA (Reuters) – Blackstone Group LP (BX.N: Quote, Profile, Research, Stock Buzz), the private equity company, reported lower quarterly profit on Wednesday, but still topped estimates, and said it sees increasing investment opportunities despite volatile markets.
Second-quarter earnings plunged to $99.9 million, after taxes but before noncash charges for vesting equity-based compensation and amortization of intangible assets, from $735.6 million a year earlier. In the first quarter of 2008, it lost $93.6 million.
Blackstone prefers this profit measure, which it calls “economic net income,” because of the huge payouts associated with its initial public offering of more than $4 billion in June 2007.
“These are some of the most difficult time I've seen in my 33 years,” Blackstone President and Chief Operating Officer Tony James said on a conference call. “The headwinds today make this a more challenging fundraising environment.”
Economic net income after taxes fell to 15 cents a share from 58 cents a year earlier. On that basis, analysts, on average, looked for 8 cents a share, according to Reuters Estimates.
“The results reflect the dire environment that these guys are trying to perform in,” said Michael Holland, chairman of private investment firm Holland & Co and a former Blackstone partner.
“They're still standing, but it's a really crummy environment,” he added.
Separately, hedge fund company Och-Ziff Capital Management Group LLC (OZM.N: Quote, Profile, Research, Stock Buzz) reported a quarterly net loss due to IPO-related costs, but economic income rose, helped by strong revenue growth.
Shares of Blackstone rose 2.6 percent, while Och-Ziff added about 1 percent. Both went public last year.
Blackstone has suffered along with the rest of the private equity industry as last summer's credit crunch froze the debt markets for large leveraged buyouts. Blackstone has taken part in some of the largest leveraged buyouts ever, like the $23 billion purchase of Equity Office Properties Trust.
Under accounting rules, the company adjusts the value of its investments every quarter, known as the “carrying value.” This assumes its assets are all being sold today, and hurts the company when markets are low.
“Lenders continue to severely restrict commitments to new debt, limiting industry-wide leveraged acquisition activity levels in both corporate and real estate markets,” the company said in a statement.
Financing leverage buyouts larger than $5 billion is difficult under the current market conditions, Blackstone's James said. That marks a great contrast to the mega-deals of $20 billion and larger seen in 2006 and 2007.
Blackstone said slowing global economic growth and surging commodity prices hurt market conditions overall in the second quarter, and U.S. and European economic indicators continue to point to a slowdown in growth.
Still, despite the challenges, the company said it has continued to see asset investments by its clients, and has hired as it creates new products. It said its balance sheet “remains strong.”
Blackstone Chief Executive Stephen Schwarzman said in a statement there was an increasing number of attractive investment opportunities.
“We committed $2.4 billion of new equity in private equity from April through July,” Schwarzman said. The company has also bought about $8 billion in leveraged loans.
Total net reportable segment revenues fell to $376.2 million from total pro-forma adjusted reportable segment revenues of $982.8 million a year ago.
Blackstone was the first major U.S. buyout firm to go public. It will be joined later this year by Kohlberg Kravis Roberts & Co [KKR.UL], which recently said it plans to brave the turbulent equity markets and list on the New York Stock Exchange.
Shares of Blackstone gained 45 cents to $18.61 on the New York Stock Exchange. The stock initially listed at $31.
“The stock has been decimated. So when the results are a little less crummy than expected, that gets reflected in the stock. Most of the factors of the bad environment have been baked into the stock already,” Holland said.
Och-Ziff rose 23 cents to $17.32 on the NYSE. (Reporting by Megan Davies and Jessica Hall; editing by Gerald E. McCormick, John Wallace and Jeffrey Benkoe)