Blackstone profit triples, stock pares gains

By Michael Flaherty and Jeffrey Goldfarb

NEW YORK/LONDON (Reuters) - Private equity firm Blackstone Group (BX.N) said on Monday second-quarter net income more than tripled on fees and profits from its leveraged buyouts.

The results initially led to an 8 percent rise in Blackstone's shares, but the stock pared gains after a broad stock market sell-off and a warning from rival Kohlberg Kravis Roberts & Co.

Blackstone shares -- technically called units because of its partnership structure -- closed up 1.7 percent at $25.71. The private equity firm debuted on the New York Stock Exchange in June at $31 per share.

Blackstone said net income climbed to $774.4 million from $224.1 million a year earlier in its first quarterly earnings report as a public company. Excluding amortization, goodwill and other noncash charges, earnings rose to 46 cents a unit from 11 cents.

Analysts on average had expected 40 cents, according to Reuters Estimates. Revenue also tripled to $975.3 million, but missed Wall Street expectations of $991.54 million.

Blackstone's results come amidst worries about the private equity industry, which has been paralyzed by problems in the credit markets.

But the favorable U.S. economic environment in the first half of the year and the firm's broad range of businesses -- from hedge fund investing to asset management to corporate advisory -- allowed it to report a quarterly performance that initially pleased investors.

"I think Blackstone's numbers will alleviate some of the concerns that the LBO cycle is over," said James Ellman, president of Seacliff Capital, a fund that manages $200 million and invests mainly in financial services stocks.

Ellman added that the leveraged buyout business is harder now than it was three months ago, and that Blackstone's outlook is not as bright as it would have been a year ago.

Ellman said the paring of gains in Blackstone's stock on Monday was due mainly to a broad weakening in financial services shares. Shares of Goldman Sachs fell nearly 2 percent to $177.50.

Shares of private equity and hedge fund company Fortress Group (FIG.N) rose 7.7 percent to $20.57 on Monday, trading up as much as 10 percent earlier in the day.

Also on Monday, private equity firm KKR said in a regulatory filing that current difficulties in the debt markets could hurt its returns and overall income.

TOUGHER DEAL CLIMATE

Blackstone President Hamilton James expressed sentiments similar to those of KKR.

James said on a conference call with analysts on Monday that Blackstone was finding it more difficult to locate new deals as credit markets tighten, which will affect near-term results.