BlackRock, Inc. (NYSE:BLK) reported adjusted operating EPS of $3.65, above consensus of $3.57 primarily due to higher than expected non-operating income. Top line revenues decreased 4% sequentially, a bit weaker than expected on lighter growth in average AUM (though healthy $39B in long term flows or ~4% ann. org. growth), two fewer days and seasonally lower performance fees. However, expenses were well managed, and came in below expectations, though still led to 260bps of negative sequential operating leverage (up y/y).

BlackRock Inc

BlackRock, Inc. (NYSE:BLK) AUM

BlackRock, Inc. (NYSE:BLK) reported $3.936T AUM  as of 3/31 + ~4% Q/Q and mostly in-line. $39B LT net inflows versus $37B forecasts translates into a reasonably competitive 4.5% annualized growth rate – though underlying flow dynamics mixed. iShares key 1Q13 driver (mostly known) with $26B net inflows, or 14% annualized growth. Volumes led by U.S./non-U.S., retail, and multi-asset class businesses, or those generally with accretive fee rates and/or margins. By contrast, active equities and active FI attrition of $7B and $2B were mildly disappointing – here, lead indicators are mixed. $35B AUM pipeline down a touch from typically strong 4Q of $49B, but up 45% Y/Y while BRS outlook also favorable into 2Q13.

BlackRock, Inc. (NYSE:BLK) reported $24.7B net inflows for iShares, as +$25.6B equity inflows were slightly offset by -$1.0B fixed income outflows. Other inflows: +$14.3B non-ETF equity index, +$9.0B multi-asset (driven by target date funds on DC plans), and +$0.8B non-ETF fixed income index. Outflows from: active equity (-$6.9B), active fixed income (-$2.4B, largely institutional) and alternatives (-$0.7B overall; positive in retail).


Positives in the quarter

  1. AUM increased by 4% sequentially, to a record $3,936bn.
  2. Healthy $39bn in long term flows or 4% ann. org growth ($40 bn total) across channels, driven by strong inflows to iShares (especially equity) and index funds, with strength in multi-asset and core alternatives as well.
  3. Slight positive mix shift;
  4. Stronger other revenues.
  5. Well managed non-comp expenses drove y/y operating leverage.
  6. EMEA and Americas regions had robust inflows of $22.4bn and $19.7bn respectively.
  7. Pipeline and BRS revenue outlook remain healthy, at $35.4bn with 7 new assignments added and 8 short term completed.
  8. Investment performance remained strong in fixed income and scientific equity, with most categories outperforming the median or benchmark.
  9. BlackRock, Inc. (NYSE:BLK) invested $250mn in share repurchases in 1Q, with a 12% increase in dividend, for a total payout ratio of 87%.
  10. Non-operating income improved q/q on stronger gains.
  11. Slightly lower tax rate.

Negatives in the quarter

  1. Active equity, fixed income, and fx/comm. alts had net outflows of -$6.9bn, -$2.4bn, and -$2.2bn respectively, as well as Asia outflows of $2.7bn.
  2. Performance fees were seasonally lower as expected: $108mn vs $239mn in 4Q12, though up from $80mn in 1Q12.
  3. BRS revenues declined q/q.
  4. Average AUM growth was a bit light.
  5. Operating margin contracted to 40.0% vs. 42.6% in 4Q due to the revenue decrease, though total expenses remained flat sequentially and margin expanded by 140bps y/y.
  6. Performance is lagging in 1-yr and 3-yr equity and multi-asset (<40% above median or benchmark).
  7. Closed-end fund launch costs of $18mn (including $2mn in commissions) raised expenses and lowered operating margin.