BlackRock Inc.'s ( BLK - Analyst Report ) fourth-quarter 2012 adjusted earnings came in at $3.96 per share, significantly surpassing the Zacks Consensus Estimate of $3.74. The result also compares favorably with the prior-quarter earnings of $3.47 and prior-year quarter’s earnings of $3.06.

For the full year 2012, BlackRock reported adjusted earnings of $13.68 per share, outpacing the Zacks Consensus Estimate of $13.45. Moreover, this compares favorably with the earnings of $11.85 in the previous year.

The year-over-year improvement in results was primarily attributable to increased top line, partly offset by higher 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, contribution to STIFs, restructuring charges and UK lease exit costs, net income came in at $690 million or $3.93 per share, up from $642 million or $3.65 per share in the prior quarter and $555 million or $3.05 per share in the year-ago quarter.

After considering the abovementioned charges, net income for 2012 stood at $2.46 billion, up 5.2% from $2.34 million in 2011.

Quarter in Detail

BlackRock’s total revenue was $2.54 billion, up 9.4% from the prior quarter and 14.0% from the prior-year quarter. Total revenue was 2.2% ahead of the Zacks Consensus Estimate of $2.48 billion.

Total revenue for 2012 was $9.34 billion, up 2.8% from $9.08 billion in the previous year. Further, total revenue exceeded the Zacks Consensus Estimate of $9.24 billion by 1.1%.

Total expenses came in at $1.53 billion, up 6.2% sequentially and 8.1% on a year-over-year basis. The sequential rise was driven by higher employee compensation and benefits, direct fund expenses as well as general and administration expenses.

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

Non-operating expense, net of non-controlling interests, was recorded at $27 million in the quarter, compared with non-operating income of $17 million in the prior quarter and non-operating expenses of $21 million in the prior-year quarter.

Net interest expense came in at $48 million, growing 2.1% from the prior quarter and 23.1% from the prior-year quarter. BlackRock’s operating income, on a GAAP basis, stood at $1.01 billion, rising 14.9% from the prior quarter and 24.4% from the year-ago quarter.

Assets Under Management

AUM totaled $3.79 trillion as of Dec 31, 2012, up 3.2% sequentially and 7.9% from the year-ago period. Total long-term inflows for the quarter came in at $3.48 trillion, rising 3.1% from the last quarter.

Share Repurchases

BlackRock repurchased 868,500 shares in the quarter under review. This brings the total number of shares repurchased in 2012 to 9.1 million.

Concurrent with the earnings release, the company’s board of directors authorized an additional 7.5 million share repurchase, bringing the total shares to be repurchased to 10.2 million.

Dividend Update

Concurrent with the earnings release, the board of directors of BlackRock announced a 12% hike in quarterly cash dividend to $1.68 per share. The dividend will be paid on Mar 25, 2013 to shareholders at the close of business on Mar 7.

Our Viewpoint

BlackRock’s sound capital deployment and acquisitions activities as well as the growing need for risk management solutions within the financial industry are anticipated to benefit its financials in the long run.

However, its cost structure and high dependence on fee-based revenue raise our concerns. Moreover, we remain apprehensive about the effects of persisting macro economic issues, low interest rate environment and stringent regulatory landscape on its profitability and growth in the future.

BlackRock currently retains a Zacks Rank #2 (Buy). However, we maintain a long-term Neutral recommendation on the stock.

Among BlackRock’s peers, Ameriprise Financial Inc. ( AMP - Analyst Report ) is expected to announce its fourth-quarter results on Jan 30.