Janus Capital Beats Estimates

Janus Capital Group Inc.’s (JNS - Analyst Report) third-quarter 2011 earnings per share attributable to common shareholders came in at 21 cents, ahead of the Zacks Consensus Estimate by 4 cents per share. Moreover, results compared favorably with 18 cents in the year-ago quarter, driven by better expense control and higher servicing fees.

Results exclude a net charge of 6 cents per share mainly associated with the mark-to-market losses on investments. Including such charge, net income was $27.4 million, or 15 cents per diluted share.

Behind the Headlines

Total revenue plunged 10.3% sequentially and inched up 2.8% year over year to $236.9 million in the third quarter. The revenue figure was below the Zacks Consensus Estimate of $241.0 million. The sequential decline reflects negative performance fees driven by underperformance of certain mutual funds.

Total operating expenses decreased 10.7% sequentially to $162.7 million, driven by lower marketing and advertising expenses, reduced general, administrative and occupancy expenses and decreased distribution expenses. Moreover, expenses plummeted 12.9% year over year due to lower employee compensation and benefits expenses and general, administrative and occupancy expenses, partly offset by higher distribution expenses.

Operating margin was 31.3% compared with 31.0% in the prior quarter and 23.4% in the year-ago quarter.

Asset Position

As of September 30, 2011, Janus Capital’s reported AUM of $141.0 billion compared with $169.8 billion as of June 30, 2011, and $160.8 billion as of September 30, 2010. Average AUM decreased 9.1% sequentially and increased 0.5% year over year to $155.9 billion.

The decrease in overall assets during the reported quarter was driven by $26.5 billion of net market depreciation and long-term net outflows of $2.4 billion. Long-term net outflows at fundamental equity and mathematical equity totaled $3.8 billion and $0.7 billion, respectively, partially offset by fixed income long-term net inflows of $2.1 billion.

Balance Sheet

As of September 30, 2011, Janus Capital had stockholders’ equity of $1.3 billion, cash and investments of $605 million and outstanding debt of $593 million.

Janus Capital’s board of directors declared a regular quarterly cash dividend of 5 cents per share, payable on November 14, 2011 to shareholders of record as of October 31, 2011.

Our Take

Janus Capital faces increasing competition from its peers Calamos Asset Management Inc. (CLMS - Snapshot Report) and Waddell & Reed Financial Inc. (WDR - Analyst Report). The company has the best-in-class investment boutique with the potential for AUM and revenue along with competitive leverage growth. 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. Further, 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 retains 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.

Read the full analyst report on JNS

Read the full analyst report on WDR

Read the full analyst report on CLMS