Janus Capital Reports In Line

Janus Capital Group Inc.’s (JNS - Analyst Report) second-quarter 2011 earnings per share attributable to common shareholders came to 23 cents, in line with the Zacks Consensus Estimate.  

Results compared favorably with 17 cents in the year-ago quarter, aided by higher assets under management (AUM), as well as growth in revenues and a decline in operating expenses.

For the reported quarter, net income was $41.9 million compared with $37.9 million in the prior quarter and $30.2 million in the year-ago quarter.

Behind the Headlines

Total revenue inched lower by 0.5% sequentially and inched higher by 5.9% year over year to $264.0 million in the second quarter. The revenue figure was below the Zacks Consensus Estimate of $266.0 million. The sequential decline reflects negative performance fees, while the year-over-year increase was marked by higher investment management fees.

Total operating expenses increased 1.1% sequentially to $182.2 million, driven by higher marketing and advertising expenses and increased distribution expenses, partially offset by lower employee compensation and benefits and general, administrative and occupancy expenses. Moreover, expenses plummeted 3.0% year over year due to lower marketing and advertising expenses, partly offset by higher distribution expenses.

Operating margin was 31.0% compared with 32.1% in the prior quarter and 24.6% in the year-ago quarter.

Asset Position

As of June 30, 2011, Janus Capital’s reported AUM of $169.8 billion compared with $173.5 billion as of March 31, 2011, and $147.2 billion as of June 30, 2010. Average AUM decreased 0.5% sequentially and increased 7.1% year over year to $171.6 billion.

The decrease in overall assets during the reported quarter was driven by $0.6 billion of net market depreciation and long-term net outflows of $3.1 billion. Long-term net outflows at fundamental equity totaled $4.6 billion, which were partially offset by fixed income and mathematical equity long-term net inflows of $1.0 billion and $0.5 billion, respectively.

Balance Sheet

As of June 30, 2011, Janus Capital had stockholders’ equity of $1.3 billion, cash and investments of $674 million and outstanding debt of $683 million.

Janus Capital’s board of directors declared a regular quarterly cash dividend of 5 cents per share, to be paid on August 12, 2011 to shareholders of record as of July 29, 2011.

Our Take

Janus Capital, which has peers such as Calamos Asset Management Inc. (CLMS - Snapshot Report) and Waddell & Reed Financial Inc. (WDR - Analyst Report), has the best-in-class investment boutique with the potential for AUM and revenue growth along with competitive leverage. However, weakness in flows remains a matter of concern.

Though fixed income and global businesses are improving, headwinds persist and the company’s equity-heavy portfolio exposes it to equity market volatility. Furthermore, a low interest rate environment affects money market business. Nevertheless, given its healthy balance sheet, we believe Janus Capital has the potential to outperform its peer group in the long run.

Janus Capital is a Zacks #3 Rank, which translates into a short-term “Hold” recommendation. Moreover, considering the fundamentals, we are maintaining a ‘Neutral’ recommendation on the stock.

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