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Franklin Resources Inc.’s (BEN - Analyst Report) fiscal third-quarter 2013 earnings reached 86 cents per share, edging past the Zacks Consensus Estimate by a penny. Moreover, results outpaced earnings of 71 cents in the prior-year quarter.
Better-than-expected results came on the back of higher revenues. Moreover, increased level of assets under management (AUM) and a strong capital position were the tailwinds. Yet, higher operating expenses were a dampener.
Net income was $552.3 million in the quarter compared with $455.3 million in the prior-year quarter.
Notably, in Jun 2013, Franklin announced a 3-for-1 stock split, which was paid as stock dividend on Jul 25, 2013 to common stockholders of record as of Jul 12, 2013. All shares and per share data have been adjusted retroactively to reflect the impact of the stock split.
Performance in Detail
Total operating revenue surged 17% year over year to $2.08 billion, due to growth in all revenue avenues. Revenue results were also above the Zacks Consensus Estimate of $2.07 billion.
Investment management fees increased 18% year over year to $1.3 billion, while sales and distribution fees jumped 17% year over year to $664.5 million. Moreover, shareholder servicing fees inched up slightly on a year-over-year basis to $77.5 million, with other net revenue surged 8% year over year to $24.5 million.
Total operating expenses increased 15% year over year to $1.3 billion. The upsurge mainly resulted from higher sales, distribution and marketing expenses, increased information systems and technology expenses and elevated compensation and benefits and general, administrative and other expenses.
As of Jun 30, 2013, total AUM was $815.0 billion, up from $707.1 billion as of Jun 30, 2012, driven by market appreciation of $73.8 billion and $29.9 billion of net new flows.
Simple monthly average AUM of $833.2 billion during the quarter climbed 17% year over year. Net new flows were $8.4 billion versus $4.8 billion in the prior-year quarter.
As of Jun 30, 2013, cash and cash equivalents along with investments were $8.6 billion compared with $8.0 billion as of Mar 31, 2013. Moreover, total stockholders' equity was $10.4 billion versus $10.1 billion as of Mar 31, 2013.
During the reported quarter, Franklin repurchased 2.2 million shares of its common stock for a total cost of $105.1 million.
Developments during the Quarter
Franklin announced the completion of the purchase of the remaining 80% stake in Pelagos Capital Management, LLC, an independent investment advisor. Franklin had previously purchased 20% stake in Pelagos in 2010. Financial terms of the deal were undisclosed.
The purchase of Pelagos will assist Franklin Templeton in improving and expanding its alternative investments and multi-asset solutions platforms. Such strategic initiatives would help the company provide world-class investment solutions to its clients and aid its global expansion.
Franklin's global footprint is an exceptionally favorable strategic point as its AUM is well diversified. The company is also poised to benefit from its strong balance sheet. However, regulatory restrictions and sluggish economic recovery could mar AUM growth and increase costs. Additionally, higher expenses remain a matter of concern.
Shares of Franklin currently carry a Zacks Rank #3 (Hold). Some investment managers that are worth considering include Pzena Investment Management, Inc (PZN - Snapshot Report), Fortress Investment Group LLC (FIG - Snapshot Report) and The Blackstone Group L.P. (BX - Analyst Report). All these 3 companies carry a Zacks Rank #2 (Buy).