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2011 Q1 Earnings: BlackRock Profits Jump 34%

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BlackRock Inc.’s (BLK) strong investment performance and robust new business helped push profits 34% higher for the world’s largest asset manager in the first-quarter 2011 earnings period, the company reported Thursday.

Net income totaled $568 million, 34% higher year over year, but 14% lower compared with the previous quarter, when BlackRock’s profits skyrocketed 107% higher. Revenues were 14% higher, at $2.28 billion versus $1.99 billion in the year-earlier period, and 8% lower than the $2.49 billion of revenues earned in fourth-quarter 2010.

Net income was down $89 million compared to Q4 2010 primarily due to the seasonal nature of performance fees, according to BlackRock’s Q1 2011 earnings release.

Earnings per share were $2.89, 33% higher than last year’s EPS of $2.17 and 14% lower than Q4 2010’s EPS of $3.35, which beat analysts’ expectations for EPS of $2.75.

“I am very pleased with our year-over-year growth in revenues and adjusted EPS, driven by strong investment performance, robust new business in long-term products, increased demand for BlackRock Solutions and continued expense discipline,” said Chairman and CEO Laurence D. Fink in a statement. “Our new business results, including $82.4 billion in the pipeline, are a direct result of the differentiated value we are delivering for our clients.”

Assets under management (AUM) totaled $3.65 trillion at March 31, up $87.5 billion, or 2%, during the quarter. Growth in AUM was driven by a $100 billion improvement in market and investment performance and $34.7 billion of net new business in long-term products, including equity, fixed income, multi-asset class and alternative investments. These reflected net inflows in all asset classes, client regions and distribution channels.

LPL Financial CIO Burt White commented on BlackRock’s earnings, saying they were superior to those of big-money banks because the asset management group is profiting from investor confidence. Big banks like JPMorgan and Bank of America are suffering from low loan demand while Goldman Sachs and Morgan Stanley’s earnings this quarter were driven by fixed-income trading, “frankly a low-margin part of the business,” White said.

“For the asset management group—BlackRock, T. Rowe Price and Legg Mason—those numbers are pretty good and will continue to be pretty good. Investors are coming through,” White said. “BlackRock’s earnings were quite good. You’ve really seen that what’s driving

their business is the profitability on the fixed-income side of the house and some of the alternative investment side of the house. Those are the two parts that are really helping them, and they’ve done quite well, and we think that will continue.”

BlackRock Q1 2011 earnings highlights:

  • BlackRock was added to the S&P 500 Indexjust after quarter-end, “which is a testament to the quality of the franchise we have built,” Fink said.
  • Equity AUM increased $69.1 billion from year-end to $1.764 trillion.Net new business during the quarter totaled $10.5 billion, reflecting $8.3 billion of net inflows in index, including $7.2 billion of iShares and $2.2 billion in fundamental active portfolios. Fundamental active equity performance was mixed, with 59%, 58% and 77% of AUM performing above the benchmark or peer median for the one-, three-, and five-year periods ended March 31.
  • iShares grew $34.2 billion during the quarter to $624.4 billion. Net new business of $10.5 billion was driven by $7.2 billion in equities, $2.3 billion in fixed income and $0.9 billion in alternatives. In response to geopolitical unrest in the Middle East, investors retreated from emerging markets into developed market equities and fixed-income ETFs. In addition, investors flocked to iShares MSCI Japan, which attracted net inflows of $3.0 billion during the quarter.
  • The first quarter 2011 operating margin was 35.0%,which included $21 million of launch costs for the $1 billion Resources and Commodities Strategy closed-end fund. Operating income of $819 million, improved $92 million, or 13%, compared to first quarter 2010 due to the effect of growth in base and performance fees as well as BlackRock Solutions and advisory fees. The decline in operating income, as compared to fourth quarter 2010 is explained by base fee and cost improvements being more than offset by a $243 million reduction in performance fees given the significant number of funds that have an annual measurement period in the fourth quarter.

For more information on earnings read AdvisorOne’s 2011 Q1 Earnings Calendar for the Financial Sector.