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Janus Capital Group Inc. (JNS - Analyst Report) reported third quarter 2012 earnings per share attributable to common shareholders of 15 cents, in line with the Zacks Consensus Estimate as well as the year-ago quarter’s earnings. Including an intangible asset impairment charge of 1 cent per share related to the redemption of a sub-advised account, earnings stood at 14 cents.

Lower top-line 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 $25.1 million compared with $27.4 million in the prior-year quarter.

Performance in Detail

Total revenue plunged 11.8% year over year to $209 million in the quarter. The year-over-year decline reflects negative performance fees driven by underperformance of certain mutual funds along with lower investment management fees. However, the revenue figure surpassed the Zacks Consensus Estimate of $206.0 million.

Total operating expenses decreased 1.0% year over year to $161.1 million. The decline was mainly driven by lower distribution expenses and reduced employee compensation and benefits expenses. Operating margin was 22.9% compared with 31.3% in the year-ago quarter.

Asset Position

As of September 30, 2012, Janus Capital reported assets under management (AUM) of $158.2 billion, up from $141.0 billion as of September 30, 2011. Average AUM decreased slightly on a year-over-year basis to $155.5 billion.

The increase in overall assets mainly reflects net market appreciation of $7.8 billion, partially offset by long-term net outflows of $2.0 billion. Long-term net inflows at fixed income and mathematical equity totaled $1.0 billion and $0.3 billion, respectively, partially offset by fundamental equity long-term net outflows of $3.3 billion.

Balance Sheet

As of September 30, 2012, Janus Capital had stockholders’ equity of $1.4 billion, cash and investments of $683.6 million and outstanding debt of $542.8 million.

Cash flows from operations were $75.3 million compared with $47.8 million in the prior-year quarter.

Capital Deployment Activity

During the third quarter of 2012, Janus Capital repurchased 773,300 shares of its common stock at an average price of $8.12 per share and at a total cost of $6.3 million.

Recently, Janus Capital’s Board of Directors declared a regular quarterly cash dividend of 6 cents per share. The dividend will be paid on November 19, 2012 to shareholders of record as of November 5, 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 the fixed income segment and global operations are showing signs of improvement, the company’s equity-heavy portfolio makes 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 currently retain a Zacks #2 Rank, which translates into a short-term Buy rating. However, considering the fundamentals, we maintain a ‘Neutral’ recommendation on the stock.

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