Franklin (BEN) Tops Q2 Earnings Estimates On Low Expenses

Driven by prudent cost management, Franklin Resources Inc. (NYSE:BEN) recorded a positive earnings surprise of 10.4% in second-quarter fiscal 2017. The company reported earnings of 74 cents per share, beating the Zacks Consensus Estimate of 67 cents. Moreover, results compared favorably with the prior-year quarter earnings of 61 cents per share.

Results were positively driven by a decline in expenses. However, net outflows and lower revenues were undermining factors.

Net income was $420.7 million in the quarter compared with $360.4 million in the prior-year quarter.

Lower Revenues Recorded, Costs Falls

Total operating revenue edged down 1%, year over year, to $1.60 billion in the quarter, mainly due to lower investment management, sales and distribution and shareholder servicing fees. Further, revenues lagged the Zacks Consensus Estimate of $1.57 billion.

Investment management fees dipped 1% year over year to $1.09 billion, while sales and distribution fees were down 1% year over year to $431.2 million. Moreover, shareholder servicing fees descended 9%, on a year-over-year basis, to $56.4 million, while other net revenue escalated 20% year over year to $23.8 million.

Total operating expenses decreased 3% year over year to $1.05 billion. The fall resulted mainly from reduced compensation and benefits, general, administrative, and other and occupancy expenses.

As of Mar 31, 2017, total AUM was $740.0 billion, down slightly from $742.6 billion as of Mar 31, 2016. Notably, the quarter recorded net new outflows of $11 billion. Simple monthly average AUM of $731.7 billion dropped 1% year over year.

Stable Capital Position

As of Mar 31, 2017, cash and cash equivalents, along with investments were $9.7 billion, compared with $10.7 billion as of Sep 30, 2016. Moreover, total stockholders' equity was $12.5 billion, in line with the figure as of Sep 30, 2016.

During the reported quarter, Franklin repurchased 4 million shares of its common stock at a total cost of $166.8 million.

Our Viewpoint

Franklin posted an impressive quarter. The company’s global footprint is an exceptionally favorable strategic point as its AUM is well diversified. In addition, the company reflected prudent expense management. However, regulatory restrictions and sluggish economic recovery could mar AUM growth and escalate costs. Moreover, lower revenues remain a concern.

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

Competitive Landscape

T. Rowe Price Group, Inc. (NASDAQ:TROW) reported negative earnings surprise of 1.7% for first-quarter 2017. Adjusted earnings per share of $1.18 missed the Zacks Consensus Estimate of $1.20. However, the bottom line improved 16.8% from the year-ago figure of $1.01.

Janus Capital Group, Inc. (NYSE:JNS) 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.

The Blackstone Group L.P. (NYSE:BX) reported first-quarter 2017 economic net income (ENI (MI:ENI)) of 82 cents per share, which surpassed the Zacks Consensus Estimate of 69 cents. Moreover, the figure compared favorably with 31 cents recorded in the prior-year quarter.

Zacks' Hidden Trades

While we share many recommendations and ideas with the public, certain moves are hidden from everyone but selected members of our portfolio services. Would you like to peek behind the curtain today and view them? Starting now, for the next month, I invite you to follow all Zacks' private buys and sells in real time from value to momentum...from stocks under $10 to ETF to option movers...from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors.
Click here for Zacks' secret trade>>