BlackRock (NYSE:BLK), which manages about $6.3 trillion in assets and is best known for its iShares Exchange Traded Funds (ETFs), beat earnings estimates for the June quarter but BLK stock barely budged.
BlackRock earned $1.07 billion, $6.66 per share, on revenue of $3.61 billion during the quarter, against net income of $854 million, $5.20 per share, and revenue of $3.23 billion a year earlier. Analysts had been expecting $6.56 per share of earnings and $3.59 billion in revenue.
BlackRock credited fees and “technology services revenue” for the revenue beat, and the Trump tax cut for the earnings beat. But assets under management fell short of estimates, which CEO Larry Fink blamed on “investor uncertainty in the current market environment.”
The market reaction was modest, despite earnings being up 27% year over year, and operating income up 16%. The stock was expected to open for trade July 16 at $507 per share.
CEO Fink, who has been arguing for sustainable, long-term thinking and was expected to be in the cabinet had Democrats won in 2016, has been coming in for increasing criticism as pressure mounts to follow the Administration line.
Shawn McCoy, a former Republican campaign operative, has even hinted in a recent column that BlackRock has gotten too big and too powerful, citing Fink’s advice that businesses “serve a social purpose.”
BlackRock’s long-term inflows came in at just $14.5 billion, well below estimates of $38 billion. The earnings figure also fell below the “whisper number” of $6.72 per share.
The stock is now down 16% from its late January high of $570, and its performance for the year to date, down 1.4%, now trails the S&P 500’s gain of 3.25%.
Canary in a Coal Mine
It’s also possible that BlackRock’s problems are just a very large canary in an economic coal mine. If BlackRock is coughing, despite its enormous success since the financial crisis, it could mean the global economy is starting to roll over.
BlackRock’s own forecast for the second half of the year is for a return to normal rates of return.
Richard Turnill, its global chief investment strategist, continues the 2017 performance an anomaly. BlackRock is not advising investors to abandon stocks, but to take actions that make portfolios more “resilient” to possible shocks, such as shorter-term bonds and tech stocks with “fortress” balance sheets that can withstand a trade war.
BlackRock seems to be taking its own advice, closing 16 of its high-beta iShares funds opening a $3.5 billion fund to invest in low-carbon energy infrastructure, and aiming to manage $144 billion in funds from Lloyds Banking Group.
While BlackRock is telling global investors to de-emphasize European stocks, it is also increasing its physical presence in Europe, hiring new managers in Paris ahead of next year’s British exit from the EU or Brexit.
The Bottom Line on BLK Earnings
BlackRock is getting more conservative, in a financial sense, battening down its investment hatches in anticipation of a storm.
With a market cap of $81.7 billion trading at a modest price-earnings ratio of 16, and a dividend of $2.88 per share per quarter currently yielding 2.34%, BlackRock itself seems like one of those conservative investments the company is suggesting investors move toward.
If you’re trying to reduce risk in your portfolio, in other words, BlackRock won’t make you a lot of money, but it will preserve your capital. That may be good enough.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing, he owned no shares in companies mentioned in this article.
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