Franklin's (BEN) Q2 Earnings Beat Estimates, AUM Declines

Franklin Resources Inc. (NYSE:BEN) reported a positive earnings surprise of 12.5% in second-quarter fiscal 2019 (ended Mar 31). Earnings of 72 cents per share outpaced the Zacks Consensus Estimate of 64 cents. Results, however, compare unfavorably with earnings of 78 cents per share recorded in the prior-year quarter.

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

Operating income was $379.5 million in the reported quarter compared with $555.7 million witnessed in the prior-year quarter.

Lower Revenues Recorded, Costs Down

Total operating revenues decreased 11% year over year to $1.43 billion in the first quarter, mainly due to lower investment management and other fees, sales and distribution fees, shareholder servicing fees and other revenues. Yet, the figure beat the Zacks Consensus Estimate of $1.41 billion.

Investment management fees declined 11% year over year to $992.4 million, while sales and distribution fees were down 13% year over year to $358.5 million. Additionally, shareholder-servicing fees descended 7% on a year-over-year basis to $57.1 million, while other net revenues slipped 13% year over year to $25.8 million.

Total operating expenses dropped 1% year over year to $1.05 billion. The downside resulted from lower sales, distribution and marketing, along with occupancy expenses. This was partly offset by rise in compensation and benefits as well as technology expenses.

As of Mar 31, 2019, total AUM came in at $712.3 billion, down 3% from $737.5 billion as of Mar 31, 2018. Notably, the quarter recorded net new outflows of $6.3 billion. Simple monthly average AUM of $688.6 billion slipped 8% on a year-over-year basis.

Stable Capital Position

As of Mar 31, 2019, cash and cash equivalents, along with investments were $7.2 billion, compared with $8 billion as of Sep 30, 2018. Furthermore, total stockholders' equity was $10.5 billion compared with $10.2 billion as of Sep 30, 2018.

During the March-end quarter, the company repurchased 4.6 million shares of its common stock at a total cost of $144.7 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 #2 (Buy). 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) recorded a positive earnings surprise of 14.7% in the first quarter. Adjusted earnings per share came in at $1.87, outpacing the Zacks Consensus Estimate of $1.63. Results also improved 7.5% from the year-ago figure of $1.74.

Blackstone (NYSE:BX) reported first-quarter 2019 distributable earnings of 44 cents, lagging the Zacks Consensus Estimate of 52 cents. However, the figure reflected improvement from 41 cents earned in the prior-year quarter. Results suggested higher revenues and growth in AUM. However, higher expenses acted as a headwind.

BlackRock’s (NYSE:BLK) January-March quarter adjusted earnings of $6.61 per share surpassed the Zacks Consensus Estimate of $6.20. Results benefited from a decline in expenses and higher AUM. Nonetheless, lower revenues acted as a headwind.

Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?

Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.

See Latest Stocks Today >>