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Franklin's (BEN) Q3 Earnings Beat Estimates, AUM Declines

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Franklin Resources Inc. BEN reported a positive earnings surprise of 3.2% in third-quarter fiscal 2019 (ended Jun 30). Adjusted earnings of 65 cents per share outpaced the Zacks Consensus Estimate of 63 cents. Results, however, compare unfavorably with earnings of 75 cents per share recorded in the prior-year quarter.

The company’s results reflected a strong capital position. However, escalating expenses, lower revenues and reduced assets under management (AUM) were recorded. Further, net outflows were also an undermining factor.

Including certain one-time items, net income was $245.9 million or 48 cents per share compared with the $402 million or 75 cents in the prior-year quarter.

Operating income was $374.9 million in the reported quarter compared with the prior-year quarter’s $503.1 million.

Lower Revenues Recorded, Costs Up

Total operating revenues decreased 5% year over year to $1.48 billion in the fiscal third quarter, mainly due to lower investment management and other fees, sales along with distribution fees, shareholder-servicing fees, partly muted by higher other revenues. The figure comes in line with the Zacks Consensus Estimate.

Investment management fees declined 5% year over year to $1.02 billion, while sales and distribution fees were down 6% year over year to $367.5 million. Additionally, shareholder-servicing fees dipped 2% on a year-over-year basis to $52.7 million, while other net revenues jumped 5% year over year to $37.1 million.

Total operating expenses flared up 4% year over year to $1.1 billion. This upside resulted from higher compensation and benefits, occupancy as well as technology expenses, partly mitigated by lower sales, distribution and marketing, along with general, administrative and other expenses.

As of Jun 30, 2019, total AUM came in at $715.2 billion, down 1% from $724.1 billion as of Jun 30, 2018. Notably, the quarter recorded net new outflows of $5.4 billion. Simple monthly average AUM of $710.8 billion slipped 3%, year on year.

Steady Capital Position

As of Jun 30, 2019, cash and cash equivalents, along with investments were $7.1 billion, compared with $8 billion as of Sep 30, 2018. Furthermore, total stockholders' equity was $10.6 billion compared with $10.2 billion as of Sep 30, 2018.

During the June-end quarter, the company repurchased 3.6 million shares of its common stock at a total cost of $121.3 million.

Our Viewpoint

The company’s global footprint is an exceptionally favorable strategic point as its AUM is well diversified. Though Franklin’s lower revenues, escalating expenses and fall in AUM remain concerns, steady capital-deployment activities raise investors’ optimism.

Franklin Resources, Inc. Price, Consensus and EPS Surprise

Franklin Resources, Inc. Price, Consensus and EPS Surprise

Franklin Resources, Inc. price-consensus-eps-surprise-chart | Franklin Resources, Inc. Quote

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

Competitive Landscape

T. Rowe Price Group, Inc. (TROW - Free Report) reported a positive earnings surprise of 6.3% in second-quarter 2019. Adjusted earnings per share came in at $2.03, outpacing the Zacks Consensus Estimate of $1.91. Results also improved 14.7% from the year-ago figure of $1.77.

Blackstone BX posted second-quarter distributable earnings of 57 cents, beating the Zacks Consensus Estimate of 50 cents. Moreover, the figure reflected improvement from 56 cents earned in the prior-year quarter. Results benefited from growth in AUM and lower expenses. However, a decline in revenues acted as a headwind.

BlackRock, Inc.’s BLK second-quarter adjusted earnings of $6.41 per share lagged the Zacks Consensus Estimate of $6.52. Moreover, the figure was 3.8% lower than the year-ago quarter’s number. Results were hurt by a decline in revenues along with higher expenses. Nevertheless, growth in AUM supported results to some extent.

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