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Franklin Resources Inc.’s (BEN - Analyst Report) fiscal third-quarter 2014 earnings of 92 cents per share missed the Zacks Consensus Estimate by 4 cents. However, results compared favorably with the prior-year quarter earnings of 86 cents per share.

Rise in expenses remained a concern. However, net inflows, top-line growth and a strong capital position were the tailwinds for the quarter.

Net income was $578.9 million in the quarter compared with $552.3 million in the prior-year quarter.
 

 

Performance in Detail

Total operating revenue increased 2% year over year to $2.13 billion, mainly due to growth in investment management fees. However, revenue results were below the Zacks Consensus Estimate of $2.18 billion.

Investment management fees increased 6% year over year to $1.39 billion, while sales and distribution fees declined 3% year over year to $643.7 million. Moreover, shareholder servicing fees descended 11% on a year-over-year basis to $69 million, with other net revenue flat on a year-over-year basis.

Total operating expenses increased 2% year over year to $1.34 billion. The upsurge mainly resulted from increased information systems and technology expenses and elevated compensation and benefits and general, administrative and other expenses, partially offset by lower sales, distribution and marketing expenses.

As of Jun 30, 2014, total assets under management (AUM) was $920.5 billion, up from $815.0 billion as of Jun 30, 2013, driven by market appreciation of $116.9 billion, partially offset by $7.2 billion of net new outflows. Simple monthly average AUM of $902.8 billion during the quarter climbed 8% year over year. Notably, net new inflows of $2.6 billion were recorded in the quarter.

Capital Position

As of Jun 30, 2014, cash and cash equivalents along with investments were $10.2 billion compared with $8.6 billion as of Sep 30, 2013. Moreover, total stockholders' equity was $11.9 billion versus $10.7 billion as of Sep 30, 2013.

During the reported quarter, Franklin repurchased 2.4 million shares of its common stock at a total cost of $128.5 million.

Our Viewpoint

Franklin's global footprint is an exceptionally favorable strategic point as its AUM is well diversified. Though regulatory restrictions and sluggish economic recovery could mar AUM growth and increase costs, the company is poised to benefit from its strong balance sheet.

Currently, Franklin carries a Zacks Rank #2 (Buy).

Competitive Landscape

Aided by higher revenues, Janus Capital Group Inc. (JNS - Analyst Report) reported second-quarter 2014 earnings per share attributable to common shareholders of 19 cents, inching past the Zacks Consensus Estimate by a penny. Moreover, results compared favorably with the prior-year quarter adjusted earnings of 12 cents. Better-than-expected results reflected top-line growth and increased AUM, depicting stability in earnings.

Federated Investors Inc. (FII - Analyst Report) reported second-quarter 2014 earnings per share of 35 cents, in line with the Zacks Consensus Estimate. Further, this compared unfavorably with the prior-year quarter earnings of 39 cents. Decrease in expenses and record higher equity assets acted as the tailwinds for the quarter. However, lower top-line performance and decline in AUM were on the downside.

Among other investment managers, Legg Mason Inc. (LM - Analyst Report) is scheduled to report June quarter-end results on Jul 31.

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