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KKR Earnings: Despite a 26% Drop in Distributable Earnings Firm Exceeds Expectations

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Securities In This Article
KKR & Co Inc Ordinary Shares
(KKR)

There was little in narrow-moat KKR’s KKR first-quarter results that would alter our long-term view of the firm. We expect to leave our $59 fair value estimate in place. KKR closed out the March quarter with $415.9 billion in fee-earning AUM, up 1.0% sequentially and 12.0% on a year-over-year basis. Adjusted net inflows of $2.8 billion during the first quarter were in line with our expectations and below the quarterly run rate for flows of $15.7 billion over the previous eight calendar quarters. The firm raised $11.7 billion in new capital during the quarter, with $9.8 billion of existing capital being deployed and the firm closing out the period with uncalled commitments at $106.3 billion.

Total revenue increased 212.9% year over year to $3.1 billion during the first quarter as both asset management and insurance segment revenue was up meaningfully when compared with the year-ago period. While management fee revenue was down 13.3% year over year, KKR reported a large increase in capital allocation-based income that lifted overall asset management revenue to $1.1 billion from negative $165 million in the prior year’s period. Insurance segment revenue, meanwhile, was up 71.9% year over year, primarily due to growth in earned premiums and meaningfully higher investment income (due, in part, to the 450-basis-point rise in the federal-funds rate since the start of last year).

Fee-related earnings (which measure profits from revenue received on a recurring basis and not subject to future realization events) of $549 million during the first quarter were down 9.3% year over year from $605 million in the first quarter of 2022, while aftertax distributable earnings (which remove the effects of unrealized activity) of $719 million, or $0.81 per share, represented a 26.2% decline when compared with last year’s results of $974 million, or $1.11 per share. This was, however, better than the FactSet consensus estimate of $0.74 per share.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Greggory Warren, CFA

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Greggory Warren, CFA, is a strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers the traditional U.S.-and Canadian-based asset managers, as well as Berkshire Hathaway.

Before assuming his current role in 2017, Warren covered the financial-services sector as a senior analyst since late 2008. Prior to that time, he covered non-alcoholic beverage manufacturers and distributors, packaged food firms, food service distributors, and tobacco companies. Before joining Morningstar in 2005, Warren worked as a buy-side equity analyst for more than seven years, covering consumer staples and consumer cyclicals.

Warren holds a bachelor's degree in accounting and English from Augustana College. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Society of Chicago. During 2014-19, Warren was selected to participate on the analyst panel at Berkshire Hathaway’s annual meeting, asking questions directly of Warren Buffett and Charlie Munger. The analyst panel was disbanded ahead of Berkshire’s 2020 annual meeting. Warren also ranked second in the investment services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

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