Finance

BlackRock profit results fall short of expectations, assets fall back below $6 trillion

Key Points
  • BlackRock says its fourth-quarter revenue totaled $3.434 billion while adjusted earnings per share was $6.08.
  • The company's assets under management fell 5 percent to $5.98 trillion over the last 12 months and slipped 7 percent from the prior quarter.
  • Earnings for the asset manager fell nearly 60 percent to $927 million.
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BlackRock, the largest asset manager in the world, reported quarterly earnings that missed analysts' expectations on Wednesday as a market downturn late last year eroded its asset base. Revenue slightly exceeded a revised estimate by Refinitiv.

Earnings for the asset manager fell nearly 60 percent to $927 million over the past year. On an adjusted basis, earnings per share were $6.08, falling short of analyst expectations of $6.27 per share. BlackRock's adjusted reported bottom line represents a 2 percent decline from the year-earlier period, when its posted a profit of $6.19 per share.

The profit drop was skewed in part due to a large benefit from the tax cut a year ago.

BlackRock's closely followed assets under management totaled $5.98 trillion at the end of the quarter, a 5 percent decline over the past 12 months and a 7 percent slip from the prior quarter. However, CEO Larry Fink told CNBC's "Squawk Box" on Wednesday that since the end of the quarter, the company's assets under management had clawed back above $6 trillion.

"We had huge equity declines in the fourth quarter, we had commodity declines. We had about a 5 percent decay in our asset base, not because of outflow, but because the market fell," Fink said. "We all know the fourth quarter was a pretty severe down graph in the equity markets, and that reflects in our net asset value, but we had organic growth unlike the majority of the industry."

The U.S. equity markets suffered a tough end to 2018, with both the Dow Jones Industrial Average and the S&P 500 falling more than 10 percent in the three months ended Dec. 31. Both indexes posted their worst December since the Great Depression as fears of slowing economic growth and rising borrowing costs kept corporate leaders on-edge.

Sales at the financial giant totaled $3.434 billion, slightly exceeding analyst expectations of $3.432 billion, according to Refinitiv's revised estimate. The revenue figure was a 9 percent slump from the fourth quarter of 2017. Revenue from its advisory, administration and lending business fell to $2.8 billion, a decline of $118 million over the last year.

The company's board of directors approved an increase in its quarterly cash dividend, bumping it to $3.30. The financial giant also saw record quarterly inflows of $81 billion in its iShares business as the high-growth exchange-traded fund segment continues to expand. The firm saw $50 billion of fourth quarter total net inflows and $124 billion of full-year inflows.

The New York-based asset manager returned $3.6 billion to shareholders in 2018, including $1.7 billion of full year share repurchases.

The company's stock is down nearly 30 percent over the last year despite its efforts to return capital to shareholders. The stock fell about 23 percent in 2018, underperforming the broader market. The fell 6.23 percent in 2018.

The company will dismiss about 500 employees (about 3 percent of its global workforce) in the weeks ahead, according to an internal memo viewed by CNBC last week. The cuts are part of a company-wide effort to "reallocate resources to our most critical growth opportunities," BlackRock President Rob Kapito said in the memo.

"As our industry undergoes an era of significant change, we can continue to outperform by building our business in high-growth markets and using our advantages in technology and portfolio construction to lead change in the industry," Kapito added. "But executing on this strategy requires that we move decisively to refocus resources where the impact will be greatest. It also requires that we operate as efficiently as possible and are organized for success. Sometimes this requires difficult decisions."

Fink confirmed the layoffs on Wednesday.

Deutsche Bank downgraded BlackRock shares to hold from buy last week and told clients not to expect much from asset manager stocks over the next year. Of the group, analyst Brian Bedell said he still prefers BlackRock to peers.

"Across these hold-rated companies, we continue to slightly prefer BlackRock given it is one of the few companies likely to sustain positive organic growth (though margins and EPS growth is likely to become more challenged given market conditions)," Bedell wrote.

The analyst sees BlackRock's stock price inching higher to $405 over the next 12 months. That's about a 2 percent climb from the current share price of $397. The stock was down nearly 1 percent in Wednesday's premarket.

— Editor's note: This story was updated after Refinitiv revised its projection for BlackRock revenues after the company reported its financial results. According to the revised estimate, BlackRock sales slightly exceeded fourth-quarter expectations.

— CNBC's Leslie Picker contributed reporting.