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Franklin (BEN) Q3 Earnings Meet Estimates, AUM Declines

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Franklin Resources Inc. (BEN - Free Report) reported third-quarter fiscal 2018 (ended Jun 30) earnings of 75 cents per share, in line with the Zacks Consensus Estimate. The reported figure compares favorably with the prior-year quarter figure of 73 cents per share.

Lower revenues and reduced assets under management (AUM) were recorded. Moreover, elevated operating expenses were a headwind. Net outflows were also an undermining factor. However, steady capital deployment was a positive.

The company reported net income of $402 million compared with $410.6 million in the prior-year quarter.

Lower Revenues Recorded, Costs Escalate

Total operating revenues decreased 3%, year over year, to $1.56 billion in the reported quarter, mainly due to lower investment management and other fees, sales and distribution fees, and shareholder servicing fees, partially offset by higher other revenues. Moreover, revenues lagged the Zacks Consensus Estimate of $1.58 billion.

Investment management fees declined 2% year over year to $1.08 billion, while sales and distribution fees were down 10% year over year to $391.4 million. In addition, shareholder-servicing fees descended 5%, on a year-over-year basis, to $53.9 million, while other net revenues escalated 32% year over year to $35.4 million.

Total operating expenses flared up 1% year over year to $1.06 billion. The upswing resulted from rise in almost all components of expenses, partly offset by lower sales, distribution and marketing expenses.

As of Jun 30, 2018, total AUM came in at $724.1 billion, down 3% from $742.8 billion as of Jun 30, 2017. Notably, the quarter recorded net new outflows of $12.1 billion. Simple monthly average AUM of $731.7 billion edged down 1% on a year-over-year basis.

Stable Capital Position

As of Jun 30, 2018, cash and cash equivalents, along with investments were $7.9 billion, compared with $9.9 billion as of Sep 30, 2017. Furthermore, total stockholders' equity was $10.2 billion compared with $12.9 billion as of Sep 30, 2017.

During the June-end quarter, the company repurchased 13.4 million shares of its common stock at a total cost of $446.2 million.

Our Viewpoint

Franklin’s lower revenues and escalated expenses were disappointing. However, the company’s global footprint is an exceptionally favorable strategic point as its AUM is well diversified. Moreover, steady capital-deployment activities raise investors’ optimism.
 

Franklin Resources, Inc. Price, Consensus and EPS Surprise

Franklin Resources, Inc. Price, Consensus and EPS Surprise | Franklin Resources, Inc. Quote

Currently, Franklin carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Competitive Landscape

BlackRock’s (BLK - Free Report) second-quarter 2018 adjusted earnings of $6.66 per share outpaced the Zacks Consensus Estimate of $6.60. Also, the bottom line came in 28% higher than the year-ago quarter. Results benefited from an improvement in revenues, rise in AUM and steady long-term inflows. However, an increase in operating expenses acted as a headwind.

SEI Investments Co.’s (SEIC - Free Report) Q2 earnings of 75 cents per share were in line with the Zacks Consensus Estimate. Also, the figure grew 32% from the prior-year quarter. An increase in total revenues, partly offset by higher operating expenses, aided the company’s results. AUM witnessed solid growth.

T. Rowe Price Group, Inc. (TROW - Free Report) reported April-June quarter adjusted earnings per share of $1.87, improving 46.1% from the year-ago figure of $1.28. The Zacks Consensus Estimate was $1.80. Results were driven by higher revenues and AUM. However, escalating expenses were a concern.

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