BlackRock, Inc. (BLK), the world’s largest investment firm by assets under management (AUM), likely experienced its fourth consecutive quarter of revenue and profit declines in the first quarter as turmoil in financial markets impacted its advisory and investment management businesses. When it releases first quarter 2023 earnings on Friday, April 14.
Key takeaways
- Analysts estimate Q1 2022 EPS of $7.54 vs $9.35.
- Revenue is also expected to decline annually.
- BlackRock sees higher inflation and yields in the near term, says analyst bets on rate cut ‘overdone’
According to analyst estimates compiled by Visible Alpha, diluted earnings per share (EPS) are expected to decline 19% year-over-year to $7.54. Investment advisory and administration fees, which account for about three-quarters of total revenue, likely fell 11% to $3.3 billion from a year earlier. The company is expected to report $8.9 trillion in assets under management (AUM), a 4% increase this quarter. Rising market value and foreign exchange gains could account for about 73% of the $313 billion AUM increase. The company will report earnings before the market opens on Friday, April 14th.
BlackRock’s earnings will likely show the toll of a year of turmoil: the war in Ukraine, volatile commodity prices, rapid inflation, aggressive rate hikes, and finally, the regional banking crisis. CEO Larry Fink warned last month that markets are now “paying for years of easy money” and that his firm is expected to show signs of a turbulent year.
Investors will also look for clues about how adverse market conditions have affected fund management flows and the exchange-traded funds (ETFs) business. BlackRock recently released a second-quarter update to its 2023 global outlook, in which the company pointed to cracks in the financial system created by the fastest rate hike cycle in 40 years.
The company expects to see higher yields in the near term with central banks likely to curb their aggressive strategies due to financial losses seen in regional banks. However, they do not expect central banks to “come to the rescue with rate cuts this year”.
BlackRock is focusing investments in “very short-term” government bonds for income, emerging market assets in developed economies, and expectations of tighter credit conditions.
That could mean a similar situation to last year as tech stocks remain sluggish and asset management firms are unable to bank on high-yield growth stocks. In a note this week, BlackRock analysts said inflation-linked government bonds “behave like risk assets” during economic downturns.
How much they can close the earnings gap created by the fallout in risk assets remains to be seen in the coming year. BlackRock shares are currently down about 5% since the start of the year, underperforming the S&P 500’s 7% gain and marginally outpacing the S&P 500 financials sector.
The key metric
A key metric will be first-quarter activity in BlackRock’s asset management and ETF divisions, with markets anticipating declines in revenue and earnings per share. Despite significant market turmoil in 2022, the company led the industry with $393 billion in net flows.
“In the United States alone, we generated $230 billion of long-term net flows. Flow was positive in all three of our areas. “iShares led the global ETF industry with $220 billion in net inflows, including record inflows into bond ETFs,” said CEO Lawrence Fink.
BlackRock said $146 billion of those flows were in the fourth quarter, which coincided with a stock market low. First-quarter earnings results will determine whether the recovery in stocks and turmoil at regional banks has dampened investor appetite.
| BlackRock Key Metrics | |||
|---|---|---|---|
| Estimates for Q1 FY2023 | Q1 FY2022 | Q1 FY2021 | |
| Earnings per share ($) | 7.54 | 9.35 | 7.77 |
| Revenue ($B) | 4.3 | 4.7 | 4.4 |
| net flow ($B) | 80.1 | 86.4 | 171.6 |