Franklin (BEN) Q1 Earnings Top Estimates, Revenues & AUM Rise

Franklin Resources Inc (NYSE:BEN). BEN reported first-quarter fiscal 2021 (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.

BEN’s results display top-line strength in the quarter. Also, a solid capital position and higher assets under management (AUM) were positives. 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.

Capital 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.

Our Viewpoint

Franklin’s global footprint is an exceptionally favorable strategic point, as its AUM is well-diversified. During the quarter, BEN completed its previously announced acquisition of O’Shaughnessy Asset Management, a preeminent quantitative asset management firm, thereby reinforcing its position in the separately managed account space. It had also signed an agreement to acquire Lexington, a domineering secondary private equity and co-investment funds’ global manager, to fortify its alternative asset competencies. Although growth in investment-management fees and strategic moves will likely support AUM growth, a rise in expenses might restrict bottom-line expansion in the upcoming period.

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

Performance of Other Finance Stocks

First Republic Bank (NYSE:FRC)’s FRC fourth-quarter 2021 earnings per share of $2.02 surpassed the Zacks Consensus Estimate of $1.91. Additionally, the bottom line improved 26.3% from the year-ago quarter’s level.

FRC’s quarterly results were supported by a higher net interest income and non-interest income. Moreover, First Republic’s balance-sheet position was strong in the quarter. However, higher expenses and elevated net loan charge-offs were the offsetting factors.

Citigroup Inc (NYSE:C). C delivered an earnings surprise of 5.04% in fourth-quarter 2021. Income from continuing operations per share of $1.46 outpaced the Zacks Consensus Estimate of $1.39. However, the reported figure declined 24% from the prior-year quarter’s level.

Citigroup’s investment banking revenues jumped in the quarter under review, driven by equity underwriting and growth in advisory revenues. However, fixed-income revenues were down due to declining rates and spread products.

U.S. Bancorp USB reported fourth-quarter 2021 earnings per share of $1.07, which missed the Zacks Consensus Estimate of $1.11. Results, however, compare favorably with the prior-year quarter’s figure of 95 cents.

Though lower revenues and escalating expenses were disappointing factors, credit quality was a tailwind. Growth in loan and deposit balance and a strong capital position were also encouraging factors. Moreover, U.S. Bancorp closed the acquisition of San Francisco-based fintech firm TravelBank, which offers technology-driven cost and travel management solutions.

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