Janus Capital Beats Ests, Revs Up

Janus Capital Group Inc. ( JNS - Analyst Report ) reported fourth quarter 2012 earnings per share attributable to common shareholders of 19 cents, beating the Zacks Consensus Estimate by 5 cents. Moreover, results compared favorably with prior-quarter earnings of 15 cents. Including an intangible asset impairment charge of 2 cents per share related to the redemption of a sub-advised account, earnings stood at 17 cents.

Higher top-line growth and decreased operating expenses, reflecting better expense management were the positives for the quarter. Yet, long-term net outflows remain a matter of concern.

Net income attributable to common shareholders stood at $31.2 million compared with $25.1 million in the prior quarter.

For full year 2012, net income totaled $102.3 million or 55 cents per share, down from $142.9 million or 78 cents per share in the prior year. However, earnings outpaced the Zacks Consensus Estimate by 2 cents.

Performance in Detail

Total revenue surged 3.6% sequentially to $216.6 million in the reported quarter. The upsurge reflects higher shareowner servicing fees and other revenues coupled with reduced negative performance fees compared with the prior quarter. Moreover, the revenue figure surpassed the Zacks Consensus Estimate of $213.0 million.

For full year 2012, total revenue declined 13.4% year over year to $850 million. However, the revenue figure beat the Zacks Consensus Estimate of $845.0 million.

Total operating expenses decreased 1.6% sequentially to $158.6 million. The decline was mainly driven by lower distribution expenses and reduced employee compensation and benefits expenses. Operating margin was 26.8% compared with 22.9% in the prior quarter.

Asset Position

As of Dec 31, 2012, Janus Capital reported assets under management (AUM) of $156.8 billion, down from $158.2 billion as of Sep 30, 2012. Yet, average AUM increased slightly on a sequential basis to $155.6 billion.

The decrease in overall assets mainly reflects long-term net outflows of $3.6 billion, partly offset by net market appreciation of $2.1 billion. Long-term net outflows at fundamental equity and mathematical equity totaled $2.7 billion and $1.6 billion, respectively, partially offset by fixed income long-term net inflows of $0.7 billion.

Balance Sheet

As of Dec 31, 2012, Janus Capital had stockholders’ equity of $1.4 billion, cash and investments of $725.6 million and outstanding debt of $545.1 million compared with stockholders’ equity of $1.4 billion, cash and investments of $683.6 million and outstanding debt of $542.8 million, respectively, in the prior quarter.

Cash flows from operations during the reported quarter were $67.4 million compared with $75.3 million in the prior quarter.

Capital Deployment Activity

During the fourth quarter, Janus Capital repurchased 293,100 shares of its common stock at an average price of $8.84 per share and at a total cost of $2.6 million.

Our Viewpoint

Janus Capital 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 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 currently carry a Zacks Rank #3 (Hold).

Among peers, Invesco Ltd. ( IVZ - Analyst Report ) and The Blackstone Group LP ( BX - Analyst Report ) are expected to release fourth quarter earnings on Jan 31, while Franklin Resources Inc. ( BEN - Analyst Report ) will report fiscal first quarter 2013 results on Feb 1.