BlackRock Reports Record Quarterly Diluted EPS of $3.93, or $3.96 as Adjusted
BlackRock Reports Record Quarterly Diluted EPS of $3.93, or $3.96 as Adjusted
Record Full Year Diluted EPS of $13.79 ($13.68 as adjusted)
Quarterly Revenue of Over $2.5 Billion Up 14% from Fourth Quarter 2011 and 9% from Third Quarter 2012
BlackRock Board of Directors Approves 12% Increase in Quarterly Dividend to $1.68 and Expands Share Repurchase Authority by an Additional 7.5 Million Shares to 10.2 Million Shares
- Record assets under management of $3.792 trillion at year end, up 8% from year end 2011
- Generated quarterly diluted EPS growth of 29% from fourth quarter 2011 and full year growth of 11% (15% as adjusted)
- Grew operating income 24% from fourth quarter 2011 and over 8% for the year
- Improved operating margin to 39.6% (42.6% as adjusted) for the quarter and to 37.7% (40.4% as adjusted) for the year
- Attracted $47.0 billion in net long-term inflows with growth across all client channels and geographies
- Liquidated the BlackRock Public-Private Investment Fund at a 23.5% internal rate of return to the U.S. Treasury
- Continued strong repurchase activity buying 868,500 shares in the quarter and 9.1 million shares for the year
- Board of Directors has declared a quarterly cash dividend of $1.68 per share of common stock. The dividend is payable March 25, 2013 to shareholders of record at the close of business on March 7, 2013.
NEW YORK--(BUSINESS WIRE)-- BlackRock, Inc. (NYS: BLK) today reported full year diluted EPS of $13.79, up 11% from 2011. Fourth quarter 2012 diluted EPS of $3.93 was up 29% from fourth quarter 2011. Revenue increased 14% from fourth quarter 2011 and 9% from third quarter 2012, reflecting growth in markets, strength in base fees and higher performance fees. Operating income for fourth quarter and full year 2012 was $1.0 billion and $3.5 billion, respectively. Operating margin of 39.6% for fourth quarter 2012 rose 330 bps from fourth quarter 2011.
As adjusted results(1) . Full year 2012 diluted EPS of $13.68 improved 15% from 2011. Fourth quarter 2012 operating income of $1.0 billion rose 24% and 19% from fourth quarter 2011 and third quarter 2012, respectively. Fourth quarter diluted EPS totaled $3.96 and included operating income of $4.07 per diluted share and net non-operating expense of $0.11 per diluted share. Adjusted operating margin of 42.6% in fourth quarter 2012 rose 260 bps from fourth quarter 2011. For more information on as adjusted items and the reconciliation to GAAP, see notes to the Condensed Consolidated Statements of Income and Supplemental Information beginning on page 10.
"BlackRock's financial performance in 2012 was strong by any measure," commented Laurence D. Fink, Chairman and CEO of BlackRock. "We closed the year with record earnings for both the quarter and the year. We improved investment performance in key areas and our work with clients was rewarded with $107.7 billion of long-term net new business. Every client type contributed to these strong flows. Our results demonstrate not only the diversity of our platform and the breadth of our global product offering, but how we have differentiated the firm and continued to evolve in anticipation of our clients' needs."
The table below presents AUM and a comparison of GAAP and as adjusted results for certain financial measures.
|(Dollar amounts in millions, except per share data)||Q4|
|Operating margin||39.6%||36.3%||330 bps||37.7%||190 bps||37.7%||35.8%||190 bps|
|42.6%||40.0%||260 bps||40.7%||190 bps||40.4%||39.7%||70 bps|
(1) See notes (a) through (f) to the Condensed Consolidated Statements of Income and Supplemental Information in Attachment I on pages 10 through 13 for more information on as adjusted items and the reconciliation to GAAP.
(2) Net income represents net income attributable to BlackRock, Inc.
"In 2012, our people delivered focused execution across our key strategic priorities. Retirement trends continue to drive new opportunities across our retail and defined contribution businesses, where we generated long-term net inflows during the year of $11.6 billion and $28.4 billion, respectively. As clients sought efficient tools and creative solutions to manage their investment exposure, they turned to iShares®. As a result, iShares maintained its #1 global market share position and net new business returned to pre-crisis levels with more than $85 billion in new assets generated this year. Elsewhere in the business, we saw strong sustained demand from clients for high yielding income strategies and multi-asset class solutions, resulting in strong support for our fixed income and equity dividend capabilities as well as multi-asset class products.
"BlackRock Solutions® remains a key differentiator for our firm, both as the foundation for the entire business as well as a key growth contributor on its own. This year we continued to grow our capabilities across geographies and asset classes adding over $3.5 trillion of new positions to our Aladdin platform. Growth for Aladdin is coming from an increasingly global set of clients focused on their entire investment portfolios across multi-asset capabilities."
"As we enter 2013, the improving global economy provides the potential for greater market stability, but it is likely that political and regulatory dynamics, persistent low-rates and protracted periods of heightened volatility will remain key factors. Still, we are well-positioned to continue delivering for our shareholders while investing for future growth with significant cash flow, which in 2012 totaled $3 billion. Our strong and stable capital position enables BlackRock to take advantage of opportunities to make strategic acquisitions like Claymore, Swiss Re and, most recently, our purchase of the ETF business from Credit Suisse, which represents a major expansion for us in the Swiss market. We are able to make these acquisitions, even as we consistently return cash to shareholders. We delivered a dividend payout ratio of 43% during the year and repurchased nearly 9.1 million shares including 868,500 in the fourth quarter, bringing our payout ratio including share repurchases to 104%. We remain committed to returning cash to our shareholders and are pleased to announce a 12% increase to our quarterly dividend for 2013 and the authority to repurchase an additional 7.5 million shares, bringing our buying capacity to 10.2 million shares."
"As we move into 2013, the investments we have made in people, technology, products and brand give us confidence in BlackRock's ability to deliver exceptional value for clients and shareholders. As we continue to invest in key growth opportunities, I am pleased to welcome Hsueh-ming Wang, our new Chairman of BlackRock China. BlackRock's employees have remained intensely focused on serving our clients, and I want to once again express my gratitude and admiration for their commitment to our clients and the Firm."
Fourth Quarter Business Highlights
Assets under management ("AUM") totaled $3.792 trillion at December 31, 2012, up 3% from September 30, 2012 and up 8% from a year ago. Net inflows in long-term products totaled $47.0 billion, reflecting equity, fixed income and multi-asset class product net inflows of $31.2 billion, $12.4 billion and $4.1 billion, respectively. Net inflows were partially offset by alternatives net outflows of $0.7 billion, including $2.0 billion of return of capital. Total net inflows of $60.8 billion also included cash management net inflows of $14.4 billion and planned advisory distributions of $0.6 billion.
Long-term AUM: The following table presents long-term AUM and base fees by client type:
|(Dollar amounts in millions)|
December 31, 2012
|% of Total||Q4|
|% of Total|
|% of Total|
|% of Total||Q3|
|% of Total|
Long-term net inflows were positive across all client regions, with net inflows of $21.4 billion, $24.4 billion and $1.2 billion from clients in the Americas, EMEA and Asia-Pacific, respectively. At December 31, 2012, BlackRock managed 61% of long-term AUM for investors in the Americas and 39% for other international clients.
- Retail AUM of$403.5 billion reflected net inflows of $4.1 billion, and market and investment performance gains of $1.4 billion.
International retail led flows, with long-term net new business of $2.1 billion, led by fixed income net inflows of over $2.0 billion. U.S. retail and high net worth net inflows of $2.0 billion showed continued strength in income-oriented products with equity dividend and high-yield bond funds among top flow generators.
- iShares net inflows of $35.7 billion reflected positive net inflows across all asset classes, including net inflows of $30.1 billion into equity funds as demand tilted toward broad market and large cap equities and flows into emerging markets funds outpacing developed markets. Fixed income and alternatives products included net inflows of $4.5 billion and $1.1 billion, respectively.
U.S. iShares net inflows into equity funds totaled $24.1 billion with notable flows into emerging markets and China equities. International iShares similarly was driven by equity net inflows of $6.0 billion led by developed and emerging broad and large cap funds.
- Institutional active AUM ended the quarter at $884.7 billion, including market and investment performance gains of $12.0 billion and continued strength in multi-asset class products with net inflows of $3.2 billion largely into defined contribution plan, target date and asset allocation offerings.
Core alternatives net inflows were $1.1 billion, excluding $2.0 billion of return of capital. Private equity funds of funds, real estate and single strategy hedge funds experienced net inflows of $0.4 billion, $0.4 billion and $0.2 billion, respectively. Equity net outflows of $4.5 billion were split between active fundamental and scientific active equity. Fixed income net outflows of $4.7 billion reflected outflows from U.S. core mandates in the latter part of the quarter.
- Institutional index AUM totaled $1.441 trillion at December 31, 2012, reflecting net inflows of $15.2 billion and market and foreign exchange valuation gains of $32.3 billion. Flows were led by fixed income with net inflows of $8.3 billion led by flows into local currency and global bond mandates. Equity net inflows of $5.9 billion primarily reflected net inflows into regional and country-specific strategies.
Cash management AUM increased 6%, or $15.4 billion, to $263.7 billion reflecting net inflows of $14.4 billion and market and net foreign exchange gains of $1.0 billion.
Advisory AUM declined 2% to $45.5 billion, due to planned portfolio liquidations.
Investment performance as of December 31, 2012 is presented in the following table:
|Actively managed products above benchmark or peer median|
|Passively managed products within or above tolerance||96%||97%||89%|
|Actively managed products above benchmark or peer median|
|Passively managed products within or above tolerance||97%||97%||97%|
|Actively managed products above benchmark or peer median||22%||20%||92%|
*Includes funds managed for unlevered, absolute return.
BlackRock Solutions("BRS") added 13 net new assignments during the quarter, including one Aladdin assignment, four Financial Markets Advisory assignments, and 10 non-recurring advisory engagements. BRS also completed 11 short-term advisory assignments during the quarter.
Net new business pipeline totaled $48.7 billion at January 10, 2013, including $25.4 billion in institutional index mandates and $7.8 billion in active mandates expected to fund in future quarters. In addition, the pipeline contains $13.9 billion of mandates funded since December 31, 2012. The unfunded portion of the pipeline primarily represents institutional assets, which account for approximately two-thirds of long-term AUM but only one-third of base fees. BlackRock Solutions' pipeline of contracts and proposals remains robust.
Fourth Quarter Financial Highlights
Comparison to the Fourth Quarter 2011
Operating income: Fourth quarter 2012 operating income was $1.0 billion compared with $808 million in fourth quarter 2011. Operating income for fourth quarter 2012 included a one-time $30 million charge related to a contribution to certain of the Company's bank-managed short-term investment funds ("STIFs"). This contribution resulted from actions to ensure compliance with new regulations from the Office of the Comptroller of the Currency ("OCC") taking effect in July 2013 that further limit a STIF's weighted-average portfolio life maturity. BlackRock chose to sell certain securities held within STIFs and to make a one-time contribution to the STIFs to maintain the value of the funds while ensuring compliance with the new OCC rules. The securities sold were held in funds managed by Barclays Global Investors ("BGI") prior to BlackRock's acquisition of BGI. Until adoption of the new STIF regulations, BlackRock had been pursuing a strategy to hold these securities as market values improved over time. When BlackRock acquired BGI, Barclays provided capital support agreements to the STIFs that covered certain losses in the aggregate of up to $2.2 billion from December 1, 2009 through December 1, 2013 or until certain criteria are met. Barclays recently exercised its termination option on the support agreements for two of the STIFs. Last quarter, BlackRock, on behalf of two of these STIFs, negotiated amendments to their capital support agreements to remove certain assets from coverage (with an estimated value of approximately $750 million) in exchange for a payment by Barclays to the STIFs of $70 million. This payment was an amount in excess of the payments that were expected under the Barclays capital support agreements. As a result of the fourth quarter security sales, these STIFs are currently in compliance with the new OCC rules. The $30 million charge related to this contribution has been excluded from as adjusted results. Fourth quarter 2011 operating income included $32 million of restructuring charges. Operating income, as adjusted, was $1.0 billion compared with $841 million in fourth quarter 2011.
Fourth quarter 2012 revenue of $2.5 billion increased $312 million from $2.2 billion in fourth quarter 2011, primarily due to the following:
- Investment advisory, administration fees and securities lending revenue of $2.1 billion in fourth quarter 2012 increased $218 million from $1.9 billion in fourth quarter 2011 due to growth in base fees and higher securities lending revenue. Securities lending fees were $113 million in fourth quarter 2012 compared with $103 million in fourth quarter 2011.
- Performance fees were $239 million in fourth quarter 2012 compared with $147 million in fourth quarter 2011, primarily reflecting higher fees from alternative products, including fees from a disposition-related opportunistic fund.
- BlackRock Solutionsand advisory revenue totaled $136 million in fourth quarter 2012 compared with $149 million in fourth quarter 2011, primarily reflecting higher revenue from Aladdin mandates more than offset by the run off of revenues associated with a lower level of advisory assets and lower one-time revenue from advisory assignments.
- Other revenue increased $24 million, largely reflecting higher earnings from certain operating advisory company investments.
Fourth quarter 2012 total operating expenses of $1.5 billion increased $115 million from fourth quarter 2011. Fourth quarter 2012 and fourth quarter 2011 operating expenses included the previously mentioned one-time $30 million contribution to STIFs and $32 million of restructuring charges, respectively. Operating expenses, as adjusted, of $1.5 billion increased $112 million from fourth quarter 2011. Results were primarily driven by the following:
- Employee compensation and benefits increased $74 million, primarily reflecting higher incentive compensation driven by higher operating income, including higher performance fees.
- Direct fund expenses increased $23 million primarily related to an increase in average iShares AUM where BlackRock pays certain non-advisory expenses of the funds.
- General and administration expenses increased $60 million, primarily due to the previously mentioned contribution to STIFs and higher marketing and promotional expenses in connection with the brand campaign, partially offset by lower occupancy and consulting costs.
Non-operating income (expense): Fourth quarter 2012 non-operating expense, net of non-controlling interests, was $27 million compared with $21 million non-operating expense in fourth quarter 2011. Fourth quarter 2012 included $21 million of net positive marks, primarily on distressed credit/mortgage fund co-investments offset by $48 million of net interest expense. Net interest expense increased $9 million from fourth quarter 2011, primarily due to long-term debt issuances in May 2012.
Income tax expense: Income tax expense totaled $288 million and $232 million for fourth quarter 2012 and 2011, respectively. The GAAP effective income tax rate for the fourth quarter 2012 was 29.4% compared with 29.5% for the fourth quarter 2011. The fourth quarter 2012 GAAP tax rate included $20 million of non-cash benefits primarily associated with revaluation of certain deferred tax liabilities, which have been excluded from the as adjusted results. The fourth quarter 2011 GAAP tax rate included $20 million of non-cash benefits associated with revaluation of certain deferred tax liabilities primarily due to tax legislation enacted in Japan, which have been excluded from the as adjusted results. The as adjusted effective income tax rate was 31.4% and 32.0% for fourth quarter 2012 and 2011, respectively.
See notes (a) through (f) in Attachment I for more information on as adjusted items and the reconciliation to GAAP.
Comparison to the Third Quarter 2012
Operating income: Fourth quarter 2012 operating income was $1.0 billion compared with $875 million in third quarter 2012. Fourth quarter 2012 operating income included the previously mentioned one-time $30 million contribution to STIFs. Operating income, as adjusted, was $1.0 billion compared with $876 million in third quarter 2012.
Fourth quarter 2012 revenue increased $219 million from third quarter 2012, primarily due to the following:
- Investment advisory, administration fees and securities lending revenue of $2.1 billion in fourth quarter 2012 increased $57 million from third quarter 2012, driven by higher long-term average AUM, partially offset by lower securities lending fees. Securities lending fees were $113 million in fourth quarter 2012 compared with $129 million in third quarter 2012.
- Performance fees increased $136 million to $239 million in fourth quarter 2012 from $103 million in third quarter 2012. The current quarter reflected fees from a disposition-related opportunistic fund and higher performance fees from products with performance measurement periods ending on December 31st.