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BlackRock Inc.'s (BLK - Analyst Report) third quarter 2012 adjusted earnings came in at $3.47 per share, significantly surpassing the Zacks Consensus Estimate of $3.30. The results also compare favorably with the prior-quarter earnings of $3.10 and prior-year quarter earnings of $2.83.

The year-over-year improvement in results was primarily attributable to increased top line and lower operating expenses. Moreover, augmented assets under management (AUM) were the other positives.

After considering PNC LTIP funding obligation, income tax changes, Merrill Lynch compensation contribution and UK lease exit costs, net income came in at $642 million or $3.65 per share, up from $554 million or $3.08 per share in the prior quarter and $595 million or $3.23 per share in the year-ago quarter.

Quarter in Detail

BlackRock’s total revenue was $2.32 billion, up 4.1% from the prior quarter and 4.3% from the prior-year quarter. Total revenue was 2.5% ahead of the Zacks Consensus Estimate of $2.26 billion.

Total expenses came in at $1.45 billion, up 3.2% sequentially but marginally down 0.2% on a year-over-year basis. The sequential rise was driven by higher employee compensation and benefits, distribution and service costs as well as general and administration expenses.

On a year-over-year basis, the expenses marginally declined due to lower amortization of deferred sales commissions as well as general and administration expenses. However, these were partly offset by higher employee compensation and benefits, distribution and servicing costs along with direct fund expenses.

Non-operating income, net of non-controlling interests, was recorded at $17 million in the quarter, compared with non-operating expenses of $46 million in the prior quarter and non-operating expenses of $87 million in the previous-year quarter.

Net interest expense came in at $47 million, growing 6.8% from the prior quarter and 27.0% from the prior-year quarter. Both increases were the result of long-term debt issuances.

BlackRock’s operating income, on a GAAP basis, stood at $875 million, rising 5.5% from $829 million in the prior quarter and 12.6% from $777 million in the year-ago quarter.

Assets Under Management

AUM totaled $3.67 trillion as of September 30, 2012, up 3.2% sequentially and 9.8% from the year-ago period. The increases were mainly due to the augmented net inflows, market valuation gains, investment performance and the recent acquisition of Swiss Re Private Equity Partners (SRPEP) AG – the European private equity franchise of Swiss Re.

Share Repurchases

BlackRock repurchased 960,100 shares in the quarter under review. This brings the total number of shares repurchased year to date to 8.2 million.


In September, BlackRock closed the deal to acquire Swiss Re. The acquisition was announced in July. With the completion of this deal, Swiss Re’s investments in SRPEP have been diverted to BlackRock Alternative Investors. The acquisition merged SRPEP into BlackRock Private Equity Partners (BRPEP).

Our Viewpoint

BlackRock’s sound capital deployment activities will continue to boost investors’ confidence in the stock. Despite the weak economic recovery and increasing competition weighing down the company’s profitability, the recent acquisition of Swiss Re’s private equity unit as well as the growing need for risk management solutions within the financial industry are anticipated to benefit BlackRock’s financials in the long run.

BlackRock currently retains a Zacks #2 Rank, which translates into a short-term Buy rating.

Among BlackRock’s peers, Calamos Asset Management Inc. (CLMS - Snapshot Report) is expected to announce its third quarter results on November 6.

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