BlackRock (BLK) Q2 Earnings Lag Estimates As Expenses Rise

BlackRock, Inc. (NYSE:BLK) reported second-quarter 2017 adjusted earnings of $5.24 per share, which lagged the Zacks Consensus Estimate of $5.39. However, the bottom line came in 10% higher than the year-ago quarter.

Lower-than-expected results were primarily due to a rise in operating expenses and lower investment advisory performance fees. However, increase in investment advisory, administration fees and securities lending revenues, along with growth in assets under management (AUM) acted as tailwinds.

Net income (on a GAAP basis) came in at $857 million, up 9% from the prior-year quarter.

Revenue Growth Offsets Rise in Expenses

Revenues (GAAP basis) increased 6% year over year to $2.97 billion. The rise was due to increase in investment advisory, administration fees and securities lending revenues, and technology and risk management revenues. The reported figure was in line with the Zacks Consensus Estimate.

Total expenses amounted to $1.72 billion, up 6% year over year. This was due to a rise in all cost components except amortization of deferred sales commissions and stable amortization of intangible assets, which witnessed a fall.

Non-operating income (on a GAAP basis) came in at $1 million as against Non-operating expense $25 million in the year-ago quarter.

BlackRock’s adjusted operating income came in at $1.25 billion, up 6% year over year.

Strong AUM & Inflows

As of Jun 30, 2017, AUM totaled $5.7 trillion, up 16% year over year. Further, during the reported quarter, the company witnessed long-term net inflows of $94.5 billion.

Share Repurchases

During the quarter, BlackRock repurchased shares worth $275 million.

Our Viewpoint

BlackRock remains well poised for opportunistic acquisitions, supported by a strong liquidity position. Moreover, its initiatives to gain market share in the ETF business are expected to drive revenue growth in the future. However, increased dependence on overseas revenues and regulatory restrictions remain primary near-term concerns.

Currently, BlackRock carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among other investment managers, The Blackstone Group L.P. (NYSE:BX) is scheduled to announce second-quarter 2017 results on Jul 20, Ameriprise Financial, Inc. (NYSE:AMP) on Jul 25 and Invesco Ltd. (NYSE:IVZ) on Jul 27.

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