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BlackRock Reports First Quarter 2017 Diluted EPS of $5.23, or $5.25 as adjusted

Company Release - 4/19/2017 6:30 AM ET
  • $80 billion of long-term net inflows, positive across product type, client type and region, reflect strength of diversified business model
  • 8% increase in revenue year-over-year driven by growth in base fees, performance fees and technology and risk management revenue
  • 19% increase in operating income (10% as adjusted) year-over-year reflects operating margin expansion and benefits of scale for clients and shareholders
  • 33% increase in diluted EPS (24% as adjusted) year-over-year also includes the impact of a discrete tax benefit associated with new accounting guidance for share-based payments
  • 9% increase in quarterly cash dividend to $2.50 per share and $275 million of share repurchases

NEW YORK--(BUSINESS WIRE)-- BlackRock, Inc. (NYSE:BLK):

FINANCIAL RESULTS

    Q1     Q1         Q4    
(in millions, except per share data)     2017       2016    

 

Change

    2016  

 

 

Change

AUM $   5,420,477 $   4,737,165 14 % $   5,147,852 5 %
Total net flows $ 64,599 $ 27,829 $ 98,050

GAAP basis:

Revenue $ 2,824 $ 2,624 8 % $ 2,890 (2 )%
Operating income $ 1,147 $ 963 19 % $ 1,225 (6 )%
Operating margin 40.6 % 36.7 %

390

 bps

42.4 %

(180

) bps

Net income(1) $ 862 $ 657 31 % $ 851 1 %
Diluted EPS $ 5.23 $ 3.92 33 % $ 5.13 2 %
Weighted average diluted shares 164.9 167.4 (1 )% 165.9 (1 )%

As adjusted:

Operating income(2) $ 1,151 $ 1,047 10 % $ 1,232 (7 )%
Operating margin(2) 42.6 % 41.6 % 100

 bps

44.4 % (180

) bps

Net income(1) (2) $ 865 $ 711 22 % $ 852 2 %
Diluted EPS(2)     $   5.25       $   4.25       24 %     $   5.14       2 %
(1)   Net income represents net income attributable to BlackRock, Inc.
(2)

See notes (1) through (3) to the Condensed Consolidated Statements of Income and Supplemental Information for more information on as adjusted items and the reconciliation to GAAP.

BlackRock, Inc. (NYSE:BLK) today reported financial results for the three months ended March 31, 2017.

“BlackRock’s first quarter results reflect the strategic decisions we have made to complement our investment capabilities with industry-leading technology,” commented Laurence D. Fink, Chairman and CEO of BlackRock. “Over the last 29 years, we’ve kept our focus on the long-term, anticipating changes in the asset management ecosystem and consistently investing in our business, to meet the evolving needs of our clients.

“Alpha generation, risk management and technology have always been the cornerstone of BlackRock. As the world becomes increasingly complex and interconnected, technology is becoming even more essential to clients, transforming the way both institutions and wealth managers construct portfolios, manage asset allocation, understand risk and engage and connect with clients. The recent repositioning of our active equity platform is yet another example of our commitment to anticipate and embrace change to deliver sustainable alpha for clients.

“First quarter long-term net inflows of $80 billion, representing annualized organic asset growth of 7%, were positive across product type, client type and region. Our commitment to investing for future growth and leveraging the benefits of scale for clients and shareholders also resulted in a 12% increase in Aladdin® revenue and 100 basis points of margin expansion year-over-year.

“Both retail and institutional investors continued to utilize BlackRock’s iShares® ETFs as the building blocks for their portfolios and in combinations to drive active returns. iShares saw record quarterly inflows of $64 billion, again capturing the #1 share of industry flows globally, in the United States and in Europe, and in equity and fixed income.

“BlackRock’s retail business returned to positive organic growth generating long-term net inflows of $5 billion, reflecting strong inflows across our top-performing unconstrained fixed income and multi-asset income offerings, as client discussions increasingly focus on outcome-based goals.

“Institutions across the globe continue to look to BlackRock for customized, innovative solutions to help them solve their most complex investment challenges. BlackRock saw institutional net inflows of $11 billion, led by multi-asset and liability-driven fixed income solutions.

“Building on record total net inflows of $202 billion in 2016, we began 2017 by repositioning our active equity platform and investing in our business for future growth. Going forward, we will continue to transform change into opportunity, using our advantaged market position to create better financial futures for clients and drive long-term growth for shareholders.”

RESULTS BY CLIENT TYPE
                March 31, 2017     Q1 2017
Q1 2017 March 31, 2017 Q1 2017 AUM Base fees(1)
(in millions), (unaudited)     Net flows     AUM     Base fees(1)     % of Total     % of Total
Retail $ 4,624 $ 564,333 $ 784 11 % 31 %
iShares ETFs 64,481 1,413,335 925 26 % 37 %
Institutional:
Active (1,010 ) 1,037,233 454 19 % 18 %
Index   12,246         2,013,905       240     37 %     9 %
Total institutional   11,236         3,051,138       694     56 %     27 %
Long-term 80,341 5,028,806 2,403 93 % 95 %
Cash management (15,705 ) 388,935 127 7 % 5 %
Advisory   (37 )       2,736       -     -       -  
Total     $ 64,599       $ 5,420,477     $ 2,530     100 %     100 %
 
RESULTS BY PRODUCT TYPE                      
March 31, 2017 Q1 2017
Q1 2017 March 31, 2017 Q1 2017 AUM Base fees(1)
(in millions), (unaudited)     Net flows     AUM     Base fees(1)     % of Total     % of Total
Equity $ 44,057 $ 2,865,515 $ 1,284 53 % 51 %
Fixed income 33,374 1,630,569 681 30 % 27 %
Multi-asset 1,549 411,565 272 8 % 11 %
Alternatives   1,361         121,157       166     2 %     6 %
Long-term 80,341 5,028,806 2,403 93 % 95 %
Cash management (15,705 ) 388,935 127 7 % 5 %
Advisory   (37 )       2,736       -     -       -  
Total     $ 64,599       $ 5,420,477     $ 2,530     100 %     100 %
 
RESULTS BY INVESTMENT STYLE                      
March 31, 2017 Q1 2017
Q1 2017 March 31, 2017 Q1 2017 AUM Base fees(1)
(in millions), (unaudited)     Net flows     AUM     Base fees(1)     % of Total     % of Total
Active $ (1,844 ) $ 1,543,519 $ 1,224 29 % 48 %
Index and iShares ETFs   82,185         3,485,287       1,179     64 %     47 %
Long-term 80,341 5,028,806 2,403 93 % 95 %
Cash management (15,705 ) 388,935 127 7 % 5 %
Advisory   (37 )       2,736       -     -       -  
Total   $ 64,599       $ 5,420,477     $ 2,530     100 %     100 %

(1) Base fees include investment advisory, administration fees and securities lending revenue.

BUSINESS HIGHLIGHTS

Long-term net inflows were positive across all major regions, with net inflows of $55.8 billion, $18.1 billion and $6.4 billion from clients in the Americas, EMEA and Asia-Pacific, respectively. At March 31, 2017, BlackRock managed 63% of its long-term AUM for investors in the Americas and 37% for clients in EMEA and Asia-Pacific.

The Company’s net flows by client type for the first quarter of 2017 are presented below.

  • Retail long-term net inflows of $4.6 billion reflected net inflows of $5.0 billion internationally, partially offset by net outflows of $0.4 billion from the United States. Fixed income net inflows of $4.8 billion were paced by inflows into unconstrained and emerging market categories. Equity net inflows of $1.8 billion reflected inflows into index mutual funds. Multi-asset net outflows of $1.7 billion were largely due to outflows from world allocation strategies.
  • iShares ETFs long-term net inflows of $64.5 billion were led by equity net inflows of $44.6 billion, with strength in iShares Core, precision exposure and financial instrument ETFs. Fixed income net inflows of $20.3 billion reflected inflows into investment grade corporate, emerging markets debt and treasury bond funds.
  • Institutional active long-term net outflows of $1.0 billion reflected equity and fixed income net outflows of $4.7 billion and $1.3 billion, respectively, partially offset by inflows into multi-asset and alternatives. Multi-asset net inflows of $3.8 billion were driven by ongoing demand for the LifePath® target-date series. Alternatives net inflows of $1.2 billion were led by inflows into infrastructure offerings.
  • Institutional index long-term net inflows of $12.2 billion included fixed income and equity net inflows of $9.5 billion and $2.4 billion, respectively.

Cash management AUM decreased 4% to $388.9 billion.

INVESTMENT PERFORMANCE AT MARCH 31, 2017 (1)

 

 

One-year period

  Three-year period   Five-year period

Fixed income:

   
Actively managed AUM above benchmark or peer median
Taxable 66% 78% 88%
Tax-exempt 62% 57% 70%
Index AUM within or above applicable tolerance   93%   99%   99%
Equity:
Actively managed AUM above benchmark or peer median
Fundamental 64% 65% 49%
Scientific 82% 85% 90%
Index AUM within or above applicable tolerance   95%   97%   97%

(1) Past performance is not indicative of future results. The performance information shown is based on preliminary available data. Please refer to performance disclosure detail.

TELECONFERENCE, WEBCAST AND PRESENTATION INFORMATION

Chairman and Chief Executive Officer, Laurence D. Fink, and Chief Financial Officer, Gary S. Shedlin, will host a teleconference call for investors and analysts on Wednesday, April 19, 2017 at 8:30 a.m. (Eastern Time). Members of the public who are interested in participating in the teleconference should dial, from the United States, (800) 374-0176, or from outside the United States, (706) 679-8281, shortly before 8:30 a.m. and reference the BlackRock Conference Call (ID Number 82927991). A live, listen-only webcast will also be available via the investor relations section of www.blackrock.com.

Both the teleconference and webcast will be available for replay by 12:30 p.m. (Eastern Time) on Wednesday, April 19, 2017 and ending at midnight on Wednesday, May 3, 2017. To access the replay of the teleconference, callers from the United States should dial (855) 859-2056 and callers from outside the United States should dial (404) 537-3406 and enter the Conference ID Number 82927991. To access the webcast, please visit the investor relations section of www.blackrock.com.

About BlackRock

BlackRock is a global leader in investment management, risk management and advisory services for institutional and retail clients. At March 31, 2017, BlackRock’s AUM was $5.4 trillion. BlackRock helps clients around the world meet their goals and overcome challenges with a range of products that include separate accounts, mutual funds, iShares® (exchange-traded funds), and other pooled investment vehicles. BlackRock also offers risk management, advisory and enterprise investment system services to a broad base of institutional investors through BlackRock Solutions®. As of March 31, 2017, the firm had approximately 13,000 employees in more than 30 countries and a major presence in global markets, including North and South America, Europe, Asia, Australia and the Middle East and Africa. For additional information, please visit the Company’s website at www.blackrock.com | Twitter: @blackrock_news | Blog: www.blackrockblog.com | LinkedIn: www.linkedin.com/company/blackrock

 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND SUPPLEMENTAL INFORMATION

(in millions, except shares and per share data), (unaudited)

        Three Months  
Three Months Ended Ended
March 31,   December 31,
    2017     2016     Change   2016     Change
Revenue

Investment advisory, administration fees and securities lending revenue

$ 2,530 $ 2,359 $ 171 $ 2,486 $ 44
Investment advisory performance fees 70 34 36 129 (59 )
Technology and risk management revenue(a) 158 141 17 157 1
Distribution fees 7 11 (4 ) 9 (2 )
Advisory and other revenue(a)   59     79     (20 )   109     (50 )
Total revenue   2,824     2,624     200     2,890     (66 )
 
Expense
Employee compensation and benefits 1,021 947 74 987 34
Distribution and servicing costs 117 97 20 109 8
Amortization of deferred sales commissions 5 10 (5 ) 7 (2 )
Direct fund expense 208 188 20 183 25
General and administration 301 318 (17 ) 355 (54 )
Restructuring charge - 76 (76 ) - -
Amortization of intangible assets   25     25     -     24     1  
Total expense   1,677     1,661     16     1,665     12  
 
Operating income 1,147 963 184 1,225 (78 )
 
Nonoperating income (expense)
Net gain (loss) on investments 51 (2 ) 53 6 45
Interest and dividend income 7 5 2 7 -
Interest expense   (65 )   (51 )   (14 )   (51 )   (14 )
Total nonoperating income (expense)   (7 )   (48 )   41     (38 )   31  
 
Income before income taxes 1,140 915 225 1,187 (47 )
Income tax expense   269     268     1     336     (67 )
Net income   871     647     224     851     20  
Less:
Net income (loss) attributable to noncontrolling interests   9     (10 )   19   -     9  
Net income attributable to BlackRock, Inc. $ 862   $ 657   $ 205   $ 851   $ 11  
 
Weighted-average common shares outstanding
Basic 163,016,599 165,388,130 (2,371,531 ) 163,441,552 (424,953 )
Diluted 164,856,183 167,398,938 (2,542,755 ) 165,854,167 (997,984 )
Earnings per share attributable to BlackRock, Inc.

common stockholders (3)

Basic $ 5.29 $ 3.97 $ 1.32 $ 5.21 $ 0.08
Diluted $ 5.23 $ 3.92 $ 1.31 $ 5.13 $ 0.10
Cash dividends declared and paid per share $ 2.50 $ 2.29 $ 0.21 $ 2.29 $ 0.21
 

Supplemental information:

 
AUM (end of period) $ 5,420,477 $ 4,737,165 $ 683,312 $ 5,147,852 $ 272,625
Shares outstanding (end of period) 162,868,647 165,174,069 (2,305,422 ) 163,121,291 (252,644 )
GAAP:
Operating margin 40.6 % 36.7 % 390 bps 42.4 % (180 ) bps
Effective tax rate 23.8 % 29.0 % (520 ) bps 28.3 % (450 ) bps
As adjusted:
Operating income (1) $ 1,151 $ 1,047 $ 104 $ 1,232 $ (81 )
Operating margin (1) 42.6 % 41.6 % 100 bps 44.4 % (180 ) bps
Nonoperating income (expense), less net income (loss)

attributable to noncontrolling interests

$ (16 ) $ (38 ) $ 22 $ (38 ) $ 22
Net income attributable to BlackRock, Inc. (2) $ 865 $ 711 $ 154 $ 852 $ 13
Diluted earnings attributable to BlackRock, Inc.

common stockholders per share (2) (3)

$ 5.25 $ 4.25 $ 1.00 $ 5.14 $ 0.11
Effective tax rate     23.8 %     29.6 %     (580 ) bps     28.6 %     (480

) bps

 

See the reconciliation to GAAP and notes (1) through (3) for more information on as adjusted items.

 
(a)  

Beginning with the first quarter of 2017, Aladdin revenue previously reported within “BlackRock Solutions® and advisory” is currently presented within “Technology and risk management revenue” on the condensed consolidated statements of income. The remaining “BlackRock Solutions and advisory” revenue is currently reported as part of “Advisory and other revenue.” Under the historical presentation, BlackRock Solutions and advisory revenue would have totaled $182 million for the three months ended March 31, 2017. Prior period amounts reported for BlackRock Solutions and advisory of $171 million and $197 million for the three months ended March 31, 2016 and December 31, 2016, respectively, have been reclassified to conform to the current presentation. See the Summary of Revenue for further information.

 

ASSETS UNDER MANAGEMENT

(in millions), (unaudited)

Current Quarter Component Changes by Client Type and Product Type

      Net            
December 31, inflows Market March 31,
2016   (outflows)   change   FX impact (1)   2017   Average AUM (2)
Retail:
Equity $ 196,221 $ 1,828 $ 9,259 $ 873 $ 208,181 $ 202,859
Fixed income 222,256 4,793 2,494 460 230,003 226,343
Multi-asset 107,997 (1,743 ) 4,257 191 110,702 109,515
Alternatives   15,478     (254 )   162     61     15,447     15,433
Retail subtotal 541,952 4,624 16,172 1,585 564,333 554,150
iShares ETFs:
Equity 951,252 44,552 54,750 1,855 1,052,409 1,003,328
Fixed income 314,707 20,304 1,960 933 337,904 327,555
Multi-asset 3,149 (378 ) 118 1 2,890 2,913
Alternatives   18,771     3     1,333     25     20,132     19,669
iShares ETFs subtotal 1,287,879 64,481 58,161 2,814 1,413,335 1,353,465
Institutional:
Active:
Equity 120,699 (4,676 ) 7,875 919 124,817 123,380
Fixed income 536,727 (1,246 ) 5,103 3,198 543,782 543,732
Multi-asset 276,933 3,758 8,455 1,583 290,729 283,748
Alternatives   75,615     1,154     639     497     77,905     76,851
Active subtotal 1,009,974 (1,010 ) 22,072 6,197 1,037,233 1,027,711
Index:
Equity 1,389,004 2,353 80,083 8,668 1,480,108 1,436,839
Fixed income 498,675 9,523 5,339 5,343 518,880 507,656
Multi-asset 6,928 (88 ) 252 152 7,244 7,149
Alternatives   7,074     458     94     47     7,673     7,390
Index subtotal   1,901,681     12,246     85,768     14,210     2,013,905     1,959,034
Institutional subtotal   2,911,655     11,236     107,840     20,407     3,051,138     2,986,745
Long-term 4,741,486 80,341 182,173 24,806 5,028,806 4,894,360
Cash management 403,584 (15,705 ) 219 837 388,935 397,621
Advisory (3)   2,782     (37 )   (29 )   20     2,736     2,762
Total $ 5,147,852   $ 64,599   $ 182,363   $ 25,663   $ 5,420,477   $ 5,294,743
                                               
Current Quarter Component Changes by Investment Style and Product Type (Long-term)
Net
December 31, inflows Market March 31,
2016   (outflows)   change   FX impact (1)   2017   Average AUM (2)
Active:
Equity $ 275,033 $ (6,820 ) $ 15,989 $ 1,514 $ 285,716 $ 281,691
Fixed income 749,996 2,061 7,405 3,558 763,020 760,128
Multi-asset 384,930 2,015 12,711 1,775 401,431 393,263
Alternatives   91,093     900     801     558     93,352     92,284
Active subtotal 1,501,052 (1,844 ) 36,906 7,405 1,543,519 1,527,366
Index and iShares ETFs:

iShares ETFs:

Equity 951,252 44,552 54,750 1,855 1,052,409 1,003,328
Fixed income 314,707 20,304 1,960 933 337,904 327,555
Multi-asset 3,149 (378 ) 118 1 2,890 2,913
Alternatives   18,771     3     1,333     25     20,132     19,669
iShares ETFs subtotal 1,287,879 64,481 58,161 2,814 1,413,335 1,353,465

Non-ETF Index:

Equity 1,430,891 6,325 81,228