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 weighed on its advisory and investment management business. when it releases first quarter 2023 earnings on Friday, April 14.
- Analysts estimate EPS of $7.54 vs. $9.35 in Q1 2022.
- Revenue is also expected to show a year-on-year decline.
- BlackRock sees higher inflation and yields in the near term, saying analyst bets on rate cuts are 'overdone.'
Diluted earnings per share (EPS) are expected to fall 19% year-over-year to $7.54, according to analyst estimates compiled by Visible Alpha. Investment advisory and administration fees, which account for about three-quarters of total revenue, likely fell 11% from a year ago to $3.3 billion. The company is expected to report $8.9 trillion in assets under management (AUM), a 4% increase over the quarter. Rising market values and foreign exchange benefits may account for about 73% of the $313 billion AUM increase. The company will report earnings before markets open Friday, April 14.
BlackRock's earnings will likely show the damage of a year's worth of upheavals: the war in Ukraine, volatile commodities prices, rampant inflation, aggressive rate hikes, and finally, the regional banking crisis. CEO Larry Fink warned last month that markets were now “paying for years of easy money” and his firm is expected to show the scars of a tumultuous year.
Investors will also be looking for clues on how adverse market conditions have affected fund management inflows and the exchange-traded funds (ETFs) business. Blackrock recently released a second-quarter update of its 2023 global outlook, in which the company noted 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 the potential for central banks to halt their aggressive strategies due to the financial damage seen in regional banks. However, they do not expect central banks “to come to the rescue with rate cuts this year."
Blackrock is placing an investment focus on “very short-term” government bonds for income, emerging market assets over developed economies, and an expectation of tighter credit conditions.
That could mean similar conditions to the previous year as tech stocks remain subdued and asset management firms are unable to bank on higher-yielding growth stocks. In a note this week, BlackRock analysts said inflation-linked government bonds “behaved more 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 year ahead. Blackrock shares are currently down about 5% from the start of the year, underperforming the S&P 500's 7% rise and only slightly outshining the S&P 500 Financials sector.
The Key Metric
With markets anticipating a decline in revenue and earnings per share, the key metric will be the first-quarter activity in BlackRock’s asset management and ETF divisions. Despite the significant market turmoil in 2022, the company led the industry with $393 billion in net inflows.
“In the United States alone, we generated $230 billion of long-term net inflows. Flows were positive across each of our three regions. iShares led the global ETF industry with $220 billion of net inflows, including record flows into bond ETFs," said CEO Laurence Fink.
BlackRock said $146 billion of those inflows were in the fourth quarter, which aligned with the bottom in stock markets. The first quarter earnings results will determine whether the recovery in stocks and the turmoil in regional banks have affected investors’ appetite.
|BlackRock Key Metrics|
|Estimate for Q1 FY2023||Q1 FY2022||Q1 FY2021|
|Earnings Per Share ($)||7.54||9.35||7.77|
|Net flows ($B)||80.1||86.4||171.6|
BlackRock. "Q1 2023 Earnings Results".
Visible Alpha. "Financial Data."
BlackRock. "Annual Chairman's Letter".
BlackRock. "Q2 2023 Outlook".
Marketwatch. "BlackRock Ups Inflation-Linked Bonds".
BlackRock. "Q4 2022 Earnings Results".