By Ryan Dezember
KKR & Co. on Tuesday swung to a narrow fourth-quarter loss,
falling short of Wall Street's expectations as lower oil prices cut
into the value of its energy investments.
The firm wrote down the value of energy investments made with
its money by about $225 million, or about 24% below cost, which
countered gains on two of the firm's biggest buyouts, payment
processor First Data Corp. and European pharmacy chain Alliance
Boots GmbH.
KKR became the latest private-equity firm to disclose that
plummeting oil and natural gas prices took a toll on the value of
its holdings. Rivals Blackstone Group LP and Apollo Global
Management LLC earlier reported fourth-quarter results that fell
from a year earlier. Apollo's profit decline was more severe and
results missed analysts' expectations, while Blackstone's profits
beat forecasts. Carlyle Group LP, which last month said its energy
funds lost value during the quarter, is scheduled to report results
Wednesday.
Echoing executives at both Blackstone and Apollo, KKR's leaders
predicted opportunities to snap up energy assets on the cheap.
"Our teams are very busy, working with [energy] companies and
management teams that need capital and a thought partner," said
Scott Nuttall, head of KKR's global capital and asset-management
group. "The opportunity is immense."
KKR reported a fourth-quarter loss of $583,000, down from a
profit of $277.9 million, or 96 cents a share, in the same period a
year earlier.
Its fourth-quarter economic net income was $86.6 million, or 5
cents a share after taxes, down from $789.6 million, or $1.08 a
share, a year earlier. The result missed Wall Street's estimates
for the profitability measure, which includes unrealized gains as
well as cash earnings. Analysts polled by Thomson Reuters
anticipated economic net income of 45 cents a share.
The results sent KKR's shares 2.8% lower to close at $24.27
Tuesday. The stock is up 4.6% on the year after declining 5.9% in
2014.
The New York firm's private-equity portfolio appreciated 2.7%
during the fourth-quarter and 12.8% in 2014.
Much of the damage done by falling oil prices came before the
fourth quarter, as the firm had by the start of October already
written off much of the value of its stake in Samson Resources
Corp., a Tulsa, Okla., oil and gas producer that KKR and other
investors acquired for $7.2 billion in a 2011 buyout. Mr. Nuttall
said KKR currently values its investment in Samson at 5 cents on
the dollar.
Another of KKR's megadeals turned the corner during the quarter,
helping to offset some of the damage from its energy bets. KKR
marked its investment in First Data up about 12% during the
quarter, pushing it above cost for the first time since shortly
after the $26 billion buyout in 2007.
KKR also reaped cash profits from sales of its stakes in Wild
Flavors GmbH, a food maker Archer Daniels Midland Co. bought for
about $3 billion, and Versatel GmbH, the owner of a German fiber
optic network. While the firm notched big unrealized losses in its
energy portfolio, those investments, including stakes in producing
wells and drilling pacts, generated $90 million of cash during the
fourth quarter. The sales and revenue from energy investments
helped generate cash the firm is paying out to shareholders.
KKR said it would pay a dividend of 35 cents a share for the
quarter, a decrease from 48 cents a year ago. That brings the total
KKR paid out in 2014 to $1.90, the firm's highest ever yearly
total, eclipsing the record of $1.40 set in 2013.
KKR also addressed rebates the firm made to fund investors in
2014 in response to a Securities and Exchange Commission exam. The
rebates, previously reported in The Wall Street Journal, amounted
to about $8 million, said Craig Larson, head of investor relations.
Mr. Larson said the majority of the refunded amount related to how
expenses were allocated between KKR's flagship private-equity funds
and so-called co-investments made in deals alongside those
funds.
He said dialogue with the SEC is ongoing. "We can't comment now
on what additional developments may occur on this in the future.
But we look at our reserve each quarter and as of year-end believe
we're adequately reserved for our legal risks," he said.
Write to Ryan Dezember at ryan.dezember@wsj.com
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