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Janus Capital's (JNS) Q1 Earnings Beat on High Revenues

JNS TROW IVZ BEN

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Janus Capital Group, Inc. (JNS - Free Report) recorded a positive earnings surprise of 9.5% in first-quarter 2017. The company reported adjusted earnings per share of 23 cents, beating the Zacks Consensus Estimate of 21 cents. In addition, results came above the prior-year quarter figure of 19 cents.

Better-than-expected results reflect increase in revenues. Moreover, increase in assets under management (AUM) was another optimistic point. However, rise in operating expenses was a concern.

Including one-time items, net income came in at $30.9 million, or 17 cents per share compared with net income of $35.1 million, or 19 cents in the prior-year quarter.
 

Revenue Rises, Expenses Flare Up

Total revenue increased 3.7% year over year to $257.6 million in the quarter, primarily on the back of higher investment management, partially offset by higher negative performance fees. However, revenues missed the Zacks Consensus Estimate of $259.4 million.

Total operating expenses increased 8.8% on a year-over-year basis to $202.3 million in the quarter. The increase was the result of a rise in almost all categories of expenses, partially offset by a fall in long-term incentive compensation, and reduced depreciation and amortization.

Strong Asset Position

Average AUM increased to $201.4 billion from $180.2 billion in the year-ago quarter and from $191.9 billion in the preceding quarter.

As of Mar 31, 2017, Janus Capital reported total AUM of $204.7 billion, up from $191.3 billion as of Mar 31, 2016 and $196.8 billion as of Dec 31, 2016.

Notably, the reported quarter witnessed a sequential increase in complex-wide assets, exhibiting net market appreciation of $12.1 billion, partly offset by long-term net outflows of $4.7 billion. Fundamental equity, Mathematical equity and fixed income long-term net outflows summed $0.6 billion, $3.8 billion and $0.3 billion, respectively.

Stable Balance Sheet

As of Mar 31, 2017, Janus Capital had stockholders’ equity of $1.66 billion, cash and investments of $655.8 million and outstanding debt of $407.4 million compared with stockholders’ equity of $1.69 billion, cash and investments of $608.4 million and outstanding debt of $403.3 million at the end of the prior-year quarter.

Cash flow from operations in the reported quarter was negative $50.1 million compared with negative $44.0 million in first-quarter 2016.

Our Viewpoint

Janus Capital has the best-in-class investment boutique, with potential for strong AUM and revenue improvement, along with competitive leverage growth. Capital deployment activities of the company are also laudable. While management foresees the recent ‘all-stock merger of equals’ agreement with Henderson Group to result in improved profitability and greater efficiency, persistent negative performance fee limit near-term profitability.

Given its healthy balance sheet, we predict Janus Capital to perform well over the long haul, while its equity-heavy portfolio makes it vulnerable to the equity market. Further, higher expenses are a key concern.
 

Janus Capital Group, Inc Price, Consensus and EPS Surprise

Janus Capital Group, Inc Price, Consensus and EPS Surprise | Janus Capital Group, Inc Quote

Janus Capital currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among other investment managers, T. Rowe Price Group, Inc. (TROW - Free Report) , Invesco Ltd. (IVZ - Free Report) and Franklin Resources, Inc. (BEN - Free Report) are scheduled to release March quarter-end results on Apr 25, Apr 27 and Apr 28, respectively.

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