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Franklin Resources (BEN) Down 8.4% Since Last Earnings Report: Can It Rebound?
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It has been about a month since the last earnings report for Franklin Resources (BEN - Free Report) . Shares have lost about 8.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Franklin Resources due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Franklin Q1 Earnings Top Estimates, Revenues & AUM Rise
Franklin reported first-quarter fiscal 2022 (ended Dec 31) adjusted earnings of $1.08 per share, which beat the Zacks Consensus Estimate of 88 cents. The bottom line also improved 48% from earnings of 73 cents per share recorded in the prior-year quarter.
Franklin’s results reflect a top-line strength in the quarter. Higher AUM balance was a positive. However, higher expenses were a major drag.
Adjusted operating income was $685.9 million in the reported quarter compared with the prior-year quarter’s $549.9 million.
Net income was $453.2 million or 88 cents per share compared with $438.4 million or 86 cents per share recorded in the prior-year quarter.
Revenues Rise, Costs Escalate
Total operating revenues rose 11% year over year to $2.22 billion in the fiscal first quarter on higher investment management, sales and distribution and other revenues. The reported figure also outpaced the Zacks Consensus Estimate of $2.19 billion.
Investment management fees climbed 14% year over year to $1.76 billion, while other revenues jumped 110% to $17.6 million. Sales and distribution fees were up marginally to $398.2 million. Shareholder-servicing fees declined 33% on a year-over-year basis to $47.7 million.
Total operating expenses flared up 5% year over year to $1.67 billion, stemming from a rise in all components of expenses, except general, administrative and other.
Franklin reported an operating margin of 25.1% compared with 20.5% in the year-ago quarter.
AUM Higher
As of Dec 31, 2021, the total AUM was $1.58 trillion, up 5% from $622.8 billion as of Dec 31, 2020. Franklin recorded net new outflows of $24.1 billion in the October-December months.
Average AUM was recorded at $1.55 trillion, flat sequentially and up 8% on a year-over-year basis.
Balance-Sheet Position Mixed
As of Dec 31, 2021, cash and cash equivalents along with investments were $5.8 billion compared with $5.9 billion as of Sep 30, 2021. Nonetheless, total stockholders' equity was $12.2 billion compared with $11.8 billion as of Sep 30, 2021.
In the reported quarter, Franklin repurchased 0.7 million shares for $21.7 million.
Outlook
The company expects second-quarter fiscal 2022 performance fee guidance in the $30-$40 million range.
Nearly a $50-million gain in the second quarter is expected from the sale of a minority stake in Embark Group to Lloyds Bank.
Management expects revenues and earnings before interest, taxes, depreciation and amortization (EBITDA) contribution from Lexington’s acquisition to be $350 million and $150 million, respectively, in fiscal 2022.
For fiscal 2022, management anticipates adjusted expenses in the $3.9-$3.95 billion range (excluding performance fees and Lexington acquisition related costs).
Franklin projects 2022 compensation ratio in the 43-44% range, inclusive of performance fees.
The company is targeting 10-20% fee growth from the combined alternatives business.
When the Lexington transaction closes, pro forma alternative AUM is expected to be approximately $200 billion.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
VGM Scores
Currently, Franklin Resources has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Franklin Resources has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Franklin Resources (BEN) Down 8.4% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Franklin Resources (BEN - Free Report) . Shares have lost about 8.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Franklin Resources due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Franklin Q1 Earnings Top Estimates, Revenues & AUM Rise
Franklin reported first-quarter fiscal 2022 (ended Dec 31) adjusted earnings of $1.08 per share, which beat the Zacks Consensus Estimate of 88 cents. The bottom line also improved 48% from earnings of 73 cents per share recorded in the prior-year quarter.
Franklin’s results reflect a top-line strength in the quarter. Higher AUM balance was a positive. However, higher expenses were a major drag.
Adjusted operating income was $685.9 million in the reported quarter compared with the prior-year quarter’s $549.9 million.
Net income was $453.2 million or 88 cents per share compared with $438.4 million or 86 cents per share recorded in the prior-year quarter.
Revenues Rise, Costs Escalate
Total operating revenues rose 11% year over year to $2.22 billion in the fiscal first quarter on higher investment management, sales and distribution and other revenues. The reported figure also outpaced the Zacks Consensus Estimate of $2.19 billion.
Investment management fees climbed 14% year over year to $1.76 billion, while other revenues jumped 110% to $17.6 million. Sales and distribution fees were up marginally to $398.2 million. Shareholder-servicing fees declined 33% on a year-over-year basis to $47.7 million.
Total operating expenses flared up 5% year over year to $1.67 billion, stemming from a rise in all components of expenses, except general, administrative and other.
Franklin reported an operating margin of 25.1% compared with 20.5% in the year-ago quarter.
AUM Higher
As of Dec 31, 2021, the total AUM was $1.58 trillion, up 5% from $622.8 billion as of Dec 31, 2020. Franklin recorded net new outflows of $24.1 billion in the October-December months.
Average AUM was recorded at $1.55 trillion, flat sequentially and up 8% on a year-over-year basis.
Balance-Sheet Position Mixed
As of Dec 31, 2021, cash and cash equivalents along with investments were $5.8 billion compared with $5.9 billion as of Sep 30, 2021. Nonetheless, total stockholders' equity was $12.2 billion compared with $11.8 billion as of Sep 30, 2021.
In the reported quarter, Franklin repurchased 0.7 million shares for $21.7 million.
Outlook
The company expects second-quarter fiscal 2022 performance fee guidance in the $30-$40 million range.
Nearly a $50-million gain in the second quarter is expected from the sale of a minority stake in Embark Group to Lloyds Bank.
Management expects revenues and earnings before interest, taxes, depreciation and amortization (EBITDA) contribution from Lexington’s acquisition to be $350 million and $150 million, respectively, in fiscal 2022.
For fiscal 2022, management anticipates adjusted expenses in the $3.9-$3.95 billion range (excluding performance fees and Lexington acquisition related costs).
Franklin projects 2022 compensation ratio in the 43-44% range, inclusive of performance fees.
The company is targeting 10-20% fee growth from the combined alternatives business.
When the Lexington transaction closes, pro forma alternative AUM is expected to be approximately $200 billion.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
VGM Scores
Currently, Franklin Resources has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Franklin Resources has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.