BlackRock,Inc. (BLK – Analyst Report) reported second-quarter 2016 adjusted earnings of $4.78 per share, which lagged the Zacks Consensus Estimate of $4.79 by a penny. Also, the bottom line came in 4% lower than the year-ago quarter figure.

Earnings were lower-than-expected primarily due to a decline in adjusted operating income. However, efficient cost containment was on the positive side. Moreover, AUM experienced a year-over-year rise during the quarter.

Net income for BlackRock in the quarter was $789 million, down 4% from the prior-year quarter.

Lower Expenses Failed to Counter Revenue Headwind

Revenues dropped 3% year over year to $2.80 billion. The fall was due to a decline in all the components except BlackRock Solutions and advisory. Further, the reported figure marginally missed the Zacks Consensus Estimate of $2.82 billion.

Total expenses amounted to $1.63 billion, down 36% year over year. The fall in employee compensation and benefits, amortization of deferred sales commissions and amortization of intangible assets was partially offset by a rise in distribution and servicing costs, direct fund expense and general & administration costs.

Non-operating expense (on a GAAP basis) came in at $25 million, down 39% year over year. BlackRock’s adjusted operating income came in at $1.18 billion, down 6% year over year.

Strong AUM & Inflows

As of Jun 30, 2016, AUM totaled $4.89 trillion, up 4% year over year. Further, during the reported quarter, the company witnessed long-term net inflows of $1.54 million.

Share Repurchase

BlackRock bought back shares worth about $275 million in the reported quarter.

Our Viewpoint

While BlackRock seem well poised to capitalize on opportunistic acquisitions to enhance performance, its initiatives to gain market share in the ETF business are expected to drive revenue growth.

However, high dependence on fee-based revenues and regulatory restrictions on its revenue sources are the primary concerns.