Franklin Resources (BEN) Tops Q4 Earnings, Expenses Fall

Franklin Resources, Inc. (NYSE:BEN) recorded a solid positive earnings surprise of 18.8% in fiscal fourth-quarter 2016. The company reported earnings per share of 82 cents, handily beating the Zacks Consensus Estimate of 69 cents. Moreover, results compared favorably with the prior-year quarter earnings of 59 cents per share.

Results were aided by decline in expenses, partially offset by reduced revenues. Notably, the quarter recorded decline in assets under management (AUM) and recorded net outflows.

For fiscal 2016, earnings per share were $2.94 and surpassed the Zacks Consensus Estimate by 12 cents. However, earnings declined 11% year over year.

Net income increased 32% year over to $472.1 million in the quarter. However, for fiscal 2016, net income was $1.73 billion, down 15% from the prior year.

Cost Control Outweighs Revenues Decline

For fiscal 2016, total operating revenue declined 17% year over year to $6.62 billion. However, revenues came above the Zacks Consensus Estimate of $6.42 billion.

Total operating revenue decreased 14% year over year to $1.61 billion in the quarter. The decline was due to reduced revenues across all segments, including investment management, sales and distribution and shareholder servicing fees. Moreover, revenues lagged the Zacks Consensus Estimate of $1.64 billion.

Investment management fees decreased 13% year over year to $1.10 billion, while sales and distribution fees declined 14% year over year to $440.8 million. Moreover, shareholder servicing fees descended 9% on a year-over-year basis to $58.4 million.

Total operating expenses were down 11% year over year to $1.03 billion. The fall resulted mainly from a decline in compensation and benefits, sales, distribution and marketing, along with reduced costs tied with information systems and technology and general and administrative.

AUM Decreases, Outflows Recorded

As of Sep 30, 2016, total AUM was $733.3 billion, down from $770.9 billion as of Sep 30, 2015. Notably, the quarter recorded net new outflows of $22.1 billion and market appreciation of $24.4 billion. Simple monthly average AUM of $736.4 billion decreased 11% year over year.

Capital Position

As of Sep 30, 2016, cash and cash equivalents, along with investments were $10.7 billion compared with $10.6 billion, as of Sep 30, 2015. Moreover, total stockholders' equity was $12.5 billion, stable with the prior-year figure.

During the reported quarter, Franklin repurchased 7.2 million shares of its common stock at a total cost of $256.2 million.

Our Viewpoint

Results do not reflect a strong quarter for Franklin. However, continued cost control is encouraging. The company is well positioned for growth given its diverse footprint and solid distribution platform. Moreover, steady capital deployment activities will continue to boost investors’ confidence.

However, the company’s muted growth in assets under management is likely to put a pressure on investment management fees. Also, volatile markets and unfavorable global economic conditions may further affect the company’s performance.

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

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Among other investment managers, T. Rowe Price Group, Inc. (NASDAQ:TROW) and Invesco Ltd. (NYSE:IVZ) are scheduled to release September quarter-end results on Oct 27, while Legg Mason, Inc. (NYSE:LM) will release on Oct 28.

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