A month has gone by since the last earnings report for BlackRock (NYSE:BLK). Shares have added about 2.6% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is BlackRock due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
BlackRock Q4 Earnings Miss Estimates on Lower Revenues
BlackRock’s fourth-quarter 2018 adjusted earnings of $6.08 per share missed the Zacks Consensus Estimate of $6.39. Further, the figure came in 2% lower than the year-ago tally.
Results were impacted by decline in revenues and assets under management (AUM). Nonetheless, lower operating expenses benefited the company’s performance.
Net income (on a GAAP basis) came in at $927 million, slumping nearly 60% from the prior-year quarter.
For 2018, adjusted earnings per share of $26.93 improved 20% year over year. However, the figure missed the Zacks Consensus Estimate of $27.29. GAAP net income for the year was $4.31 billion, down 13% year over year.
Revenues Fall, Expenses Drop
Revenues for the reported quarter (on a GAAP basis) were $3.43 billion, declining 9% year over year. The downside stemmed from decrease in investment advisory, administration fees and securities lending revenue, and investment advisory performance fees. However, the reported figure marginally beat the Zacks Consensus Estimate.
For 2018, GAAP revenues were $14.20 billion, up 4% compared with the prior year. The figure, however, lagged the Zacks Consensus Estimate of $14.28 billion.
Total expenses for the reported quarter amounted to $2.19 billion, down 4% year over year. The decline came due to fall in employee compensation and benefit costs, direct fund expenses, and distribution and servicing costs.
Non-operating expense (on a GAAP basis) was $72 million compared with non-operating income of $1 million recorded in the year-ago quarter.
BlackRock’s adjusted operating income was $1.31 billion, down 12% year over year.
Lower AUM
As of Dec 31, 2018, AUM totaled nearly $6 trillion, reflecting a decline of 5% year over year. Furthermore, during the reported quarter, the company witnessed long-term net inflows of $43.6 billion.
Capital Deployment Actions
During 2018, BlackRock repurchased shares worth $1.66 billion.
Additionally, the company’s Board of Directors approved 5% hike in quarterly cash dividend to $3.30 per share.
Outlook
Underperformance of several indexes during fourth-quarter 2018 will adversely impact performance fees for 2019 as certain quarterly and annual locking funds are below high watermarks entering the year.
Growth in technology services revenues is expected to be in low to mid-teens range over the long term.
Management expects 2019 G&A expense to be essentially flat to its core level of spend in 2018.
Subject to the current market conditions, the company expects to repurchase shares worth at least $1.2 billion during 2019.
Management expects effective tax rate for 2019 to be 24%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
Currently, BlackRock has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise BlackRock has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
BlackRock, Inc. (BLK): Free Stock Analysis Report
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