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KKR Earnings: Despite a 7% Decline in Distributable Earnings KKR Still Exceeds Expectations

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There was little in narrow-moat KKR’s KKR third-quarter results that would alter our long-term view of the firm. We expect to leave our $63 per share fair value estimate in place. We view the shares as being fairly valued right now.

KKR closed out the September quarter with $423.6 billion in fee-earning AUM, up 0.9% sequentially and 6.5% year over year. Adjusted net inflows of $3.2 billion during the period were in line with our expectations but still below the quarterly run rate for flows of $11.7 billion the previous eight calendar quarters. The firm raised $13.6 billion in new capital during the third quarter, with $9.0 billion of existing capital being deployed and the firm closing out the period with uncalled commitments at $99.5 billion.

Total GAAP revenue increased to $3.3 billion during the September quarter (from $1.9 billion in the year-ago period) as a meaningful increase in asset management revenue offset a decline in insurance segment revenue year over year. Asset management fee revenue was up 13.1% year over year, and KKR also reported a large increase in capital allocation-based income, which lifted overall asset management revenue to $1.7 billion from $101 million in the prior year’s period. Insurance segment revenue declined to $1.7 billion (compared with $1.8 billion in the year-ago period), as higher investment income offset weaker earned premium growth year over year.

Fee-related earnings (which measure profits from revenue received on a recurring basis and not subject to future realization events) of $558 million during the third quarter were up just 2.9% year over year from $542 million in the year-ago period, while after-tax distributable earnings (which remove the effects of unrealized activity) of $780 million, or $0.88 per share, represented a 6.6% decline when compared with last year’s results of $835 million, or $0.94 per share. This was, however, slightly better than the FactSet consensus estimate (as well as our own) of $0.83 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

Strategist
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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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