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Franklin (BEN) Beats on Q2 Earnings, Records Net Outflows

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Franklin Resources (BEN - Free Report) recorded second-quarter fiscal 2018 earnings per share of 78 cents, beating the Zacks Consensus Estimate of 75 cents. Further, the bottom line compared favorably with the prior-year quarter figure of 74 cents per share.

The results reflect Franklin’s top-line strength, supported by higher investment management fees. Nevertheless, elevated operating expenses remained a headwind. Also, net outflows and lower assets under management (AUM) were the undermining factors.

The company reported net income of $443.2 million, up 5.3% from the prior-year quarter.

Revenues Rise, Costs Increase

Total operating revenues increased 1% year over year to $1.62 billion in the quarter, mainly due to higher investment management, shareholder servicing fees and other fees, partly offset by lower sales and distribution fees. Also, revenues surpassed the Zacks Consensus Estimate of $1.59 billion.

Investment management fees climbed 3% year over year to $1.12 billion while sales and distribution fees declined 5% to $409.8 million. Shareholder servicing fees rose 9%, on a year-over-year basis to $61.3 million while other net revenues jumped 24% to $29.6 million.

Total operating expenses flared up 2% to $1.06 billion. The increase resulted from rise in almost all components of expenses.

As of Mar 31, 2018, total AUM came in at $737.5 billion, down slightly from $740 billion as of Mar 31, 2017. Notably, the quarter recorded net new outflows of $10 billion compared with outflows of $11 billion in year-ago quarter. Simple monthly average AUM of $751.8 billion advanced 3% on a year-over-year basis.

Stable Capital Position

As of Mar 31, 2018, cash and cash equivalents, along with investments were $10.1 billion, compared with $9.9 billion as of Sep 30, 2017. Furthermore, total stockholders' equity was $10.4 billion compared with $12.9 billion as of Sep 30, 2017.

During the reported quarter, the company repurchased 11.1 million shares of its common stock at a total cost of $432.6 million.

Our Viewpoint

Franklin increasing revenue base remains a tailwind. The company’s global footprint is an exceptionally favorable strategic point as its AUM is well diversified. However, regulatory restrictions might impede its AUM growth and escalate costs. Also, the company continues to witness net outflows, which remains a concern.

Franklin Resources, Inc. Price, Consensus and EPS Surprise

Currently, Franklin carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Stocks

TD Ameritrade Holding Corporation (AMTD - Free Report) reported earnings per share of 73 cents in second-quarter fiscal 2018 (ending Mar 31), beating the Zacks Consensus Estimate by a penny. Moreover, the bottom line increased 66% from the prior-year quarter.

T. Rowe Price Group (TROW - Free Report) reported earnings per share of $1.77 for first-quarter 2018, which lagged the Zacks Consensus Estimate of $1.78. However, the bottom line improved 14.9% from the year-ago figure of $1.54.

E*TRADE Financial recorded positive earnings surprise of 11.4% in first-quarter 2018. Earnings of 80 cents per share comfortably surpassed the Zacks Consensus Estimate of 79 cents. Moreover, results compared favorably with 48 cents recorded in the prior-year quarter.

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