Investor willingness to put money into riskier securities pushed BlackRock Inc. (BLK) past analysts’ expectations by nearly 18% with its fourth-quarter 2010 earnings report released Tuesday, which showed diluted earnings per share at $3.42 versus estimates of $2.90.
The world’s largest asset manager broke its quarterly earnings record with the report, which showed profits skyrocketing 107% higher at $657 million, or $3.35 per share, compared with $256 million, or $1.62 per share, a year ago. Quarterly revenue was posted at $2.49 billion, up 61% from $1.54 billion a year earlier. Annual revenue was 157% higher.
Assets under management (AUM) totaled $3.561 trillion at Dec. 31, up $114.9 billion, or 3%, during the quarter.
“The increase in AUM was driven by market and investment performance of $132.1 billion and net new business of $23.9 billion, which were partially offset by merger-related outflows of $38.7 billion,” the company reported in its earnings release. “A single index client accounted for $23.6 billion of the merger-related outflows, representing less than $1.5 million in annualized revenues. For the year, AUM rose $214.7 billion, or 6%, on the strength of $284.1 billion from market and investment performance and $57.8 billion of net new business, while merger-related outflows totaled $121.0 billion, or less than 7% of acquired AUM.”
Analysts and the company say the results signal investors’ renewed confidence in the stock market and increasing tendency to shy away from bonds. BlackRock's record results also reflect the firm’s 2009 acquisition of Barclays Global Investors (BGI), a leader in index and exchange-traded funds.
“The numbers came in above expectations,” said Stifel Nicolaus equity analyst J. Jeffrey Hopson. “As relevant is that the flows in the door are now moving toward higher-fee, higher-risk products for clients. It’s a mix shift that’s beneficial for BlackRock’s bottom line. On both the retail and investment advisory side, they’re really both the same in terms of what BlackRock is doing. Clients are becoming a little more aggressive with their own investments, and that move toward equities and credit and away from low-risk products such as Treasuries is benefiting BlackRock’s top line and margins.”
Chairman and Chief Executive Laurence Fink noted that BlackRock closed 2010 with strong earnings for both the quarter and the year due to attractive investment performance and growing new business momentum.
“Away from merger-related outflows, new business was robust, with a combined $96.6 billion in fourth quarter net flows and net wins in the pipeline,” Fink said in a statement. “These flows spanned all regions and all client channels and reflect the diversity of our platform and the breadth of our global new business effort."
BlackRock Q4 2010 Highlights
Investment advisory, administration fees and securities lending revenue of $1.95 billion increased $697 million, or 56%, compared to $1,254 million in fourth-quarter 2009, primarily related to the BGI acquisition as well as growth in long-term AUM, which included net new business and market appreciation on long-term AUM during the prior 12 months, partially offset by a decline in fees from cash management products due to lower average AUM.
Performance fees were $326 million, compared with $125 million in fourth-quarter 2009. The $201 million increase primarily relates to an increase in performance fees earned upon exceeding absolute investment or relative investment return thresholds on alternative multi-strategy hedge funds, regional/country equity strategies, multi-asset class and fixed income products.
BlackRock Solutions and advisory revenue was $132 million compared with $108 million in fourth-quarter 2009. The increase was primarily due to an increase in advisory assignments and additional Aladdin mandates.
Read about BlackRock's third-quarter 2010 earnings at AdvisorOne.com.
Read AdvisorOne's 2010 Q4 earnings calendar for the financial sector for release dates and links to earnings stories.