Franklin's (BEN) Q1 Earnings Miss Estimates, AUM Declines

Franklin Resources Inc. (NYSE:BEN) reported a negative earnings surprise of 15.6% in first-quarter fiscal 2019 (ended Dec 31). Earnings of 54 cents per share missed the Zacks Consensus Estimate of 64 cents. Further, results compared unfavorably with adjusted earnings of 88 cents per share recorded in the prior-year quarter.

The company witnessed lower revenues and reduced assets under management (AUM) in the quarter. Net outflows were also an undermining factor. However, controlled expenses offset the downside.

Operating income was $411.5 million in the reported quarter compared with $478.7 million witnessed in the prior-year quarter.

Lower Revenues Recorded, Costs Down

Total operating revenues decreased 13% year over year to $1.41 billion in the reported quarter, mainly due to lower investment management and other fees, along with sales and distribution fees, partially offset by higher shareholder servicing fees and other revenues. Moreover, the figure missed the Zacks Consensus Estimate of $1.43 billion.

Investment management fees declined 13% year over year to $971.8 million, while sales and distribution fees were down 15% year over year to $354.8 million. However, shareholder-servicing fees ascended slightly, on a year-over-year basis, to $55.1 million, while other net revenues climbed 2% year over year to $29.8 million.

Total operating expenses declined 3% year over year to $1 billion. The downside resulted from lower sales, distribution and marketing expenses, partly offset by rise in almost all components of expenses.

As of Dec 31, 2018, total AUM came in at $649.9 billion, down 14% from $753.8 billion as of Dec 31, 2017. Notably, the quarter recorded net new outflows of $7.3 billion. Simple monthly average AUM of $683.2 billion slipped 9% on a year-over-year basis.

Stable Capital Position

As of Dec 31, 2018, cash and cash equivalents, along with investments were $7.8 billion, compared with $8 billion as of Sep 30, 2018. Furthermore, total stockholders' equity was $10.1 billion compared with $10.2 billion as of Sep 30, 2018.

During the quarter under review, the company repurchased 10.7 million shares of its common stock at a total cost of $326.9 million.

Our Viewpoint

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

Franklin Resources, Inc. Price, Consensus and EPS Surprise

Franklin Resources, Inc. Price, Consensus and EPS Surprise | Franklin Resources, Inc. Quote

Currently, Franklin carries a Zacks Rank #5 (Strong Sell).

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

Competitive Landscape

BlackRock, Inc. (NYSE:BLK) posted fourth-quarter 2018 results. The company’s fourth-quarter 2018 adjusted earnings of $6.08 per share missed the Zacks Consensus Estimate of $6.39. Further, the figure came in 2% lower than the year-ago tally.

Federated Investors, Inc. (NYSE:FII) delivered a positive earnings surprise of 1.7% in fourth-quarter 2018. Earnings per share (EPS) of 61 cents surpassed the Zacks Consensus Estimate of 60 cents. The figure, however, compared unfavorably with the prior-year quarter earnings of $1.31.

Cohen & Steers’ (NYSE:CNS) fourth-quarter 2018 adjusted earnings came in at 56 cents per share, missing the Zacks Consensus Estimate of 60 cents. However, the bottom line came in 1.8% higher than the year-ago quarter.

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