Janus Capital Lags Ests, Revs Down

Janus Capital Group Inc.’s (JNS - Analyst Report) reported second quarter 2012 earnings per share attributable to common shareholders of 13 cents lagged the Zacks Consensus Estimate by a penny. Moreover, results compare unfavorably with 15 cents earned in the prior quarter and 23 cents in the year-ago quarter.

Lower topline growth and net outflows were the negatives for the quarter. However, decline in operating expenses reflect better expense management.

Net income attributable to common shareholders stood at $23.4 million compared with $22.6 million in the prior quarter and $41.9 million in the prior-year quarter.

Performance in Detail

Total revenue plunged 5.7% sequentially and 22.0% year over year to $206 million in the quarter. The sequential and year-over-year decline reflect negative performance fees driven by underperformance of certain mutual funds coupled with lower investment management fees. Moreover, the revenue figure also missed the Zacks Consensus Estimate of $219.0 million.

Total operating expenses decreased 4.9% sequentially and 15.5% year over year to $153.9 million. The decline was driven by lower distribution expenses and reduced employee compensation and benefits expenses.

Operating margin was 25.3% compared with 25.9% in the prior quarter and 31.0% in the year-ago quarter.

Asset Position

As of June 30, 2012, Janus Capital reported assets under management (AUM) of $152.4 billion compared with $164.0 billion as of March 31, 2012, and $169.8 billion as of June 30, 2011. Average AUM decreased 2.5% sequentially and 9.7% year over year to $155.0 billion.

The decrease in overall assets mainly reflects net market depreciation of $7.6 billion and long-term net outflows of $3.9 billion. Long-term net outflows both at fundamental equity and mathematical equity totaled $2.5 billion, partially offset by fixed income long-term net inflows of $1.1 billion.

Balance Sheet

As of June 30, 2012, Janus Capital had stockholders’ equity of $1.4 billion, cash and investments of $638.6 million and outstanding debt of $540.4 million.

Janus Capital’s Board of Directors declared a regular quarterly cash dividend of 6 cents per share. The dividend will be paid on August 20, 2012 to shareholders of record as of August 6, 2012.

Our Viewpoint

Janus Capital faces increasing competition from its peers Fortress Investment Group LLC (FIG - Snapshot Report) and Federated Investors Inc. (FII - 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 segment and global operations are showing signs of improvement, the company’s equity-heavy portfolio will make it vulnerable to the volatilities of the equity market. Further, a low interest rate environment will likely affect the money market business. Nevertheless, given its healthy balance sheet, we believe Janus Capital has the potential to perform well in the long run.

Shares of Janus Capital Shares currently retain a Zacks #4 Rank, which translates into a short-term Sell rating. However, considering the fundamentals, we maintain a Neutral recommendation on the stock.