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