Janus Capital (JNS) Stock Dips 4% Despite Q3 Earnings Beat

Janus Capital Group, Inc.’s (NYSE:JNS) stock inched down nearly 4%, despite recording a positive earnings surprise of 4.4% in third-quarter 2016. The company reported adjusted earnings per share of 24 cents, beating the Zacks Consensus Estimate by a penny. Moreover, the bottom-line improved 9.1% from the prior-year quarter.

Though the company outpaced the Zacks Consensus Estimate for earnings, investors remain apprehensive due to declining revenues. However, the decline in operating expenses is a consequence of prudent expense management. Moreover, increase in AUM was another positive.

Net income attributable to common shareholders, on an adjusted basis, was $45.3 million, up 6.1% year over year.

Revenues and Expenses Decline

Total revenue decreased 5.4% year over year to $258.9 million in the quarter, primarily due to lower investment management and higher negative performance fees. Revenues also missed the Zacks Consensus Estimate of $261 million.

Total operating expenses decreased slightly on a year-over-year basis to $189.6 million. The decline was primarily due to lower marketing and advertising, distribution, and general, administrative and occupancy expenses.

Strong Asset Position

Average AUM increased to $195.6 billion from $192.1 billion in the year-ago quarter and from $189.3 billion in the preceding quarter.

As of Sep 30, 2016, Janus Capital reported total AUM of $198.9 billion, up from $194.7 billion as of Jun 30, 2016 and $185.0 billion as of Sep 30, 2015.

Notably, the reported quarter witnessed an increase in complex-wide assets, exhibiting net market appreciation of $6.7 billion, partially reduced by long-term net outflows of $2.4 billion. This net outflow included mathematical equity, Janus equity, and fixed income net outflows of $1.8 billion, $0.9 billion and $0.1 billion, respectively, partially mitigated by Perkins equity net inflows of $0.4 billion.

Stable Balance Sheet

As of Sep 30, 2016, Janus Capital had stockholders’ equity of $1.7 billion, cash and investments of $731.8 million and outstanding debt of $405.3 million compared with stockholders’ equity of $1.7 billion, cash and investments of $653.6 million and outstanding debt of $404.2 million at the end of the prior quarter.

Cash flow from operations in the reported quarter was $110.1 million compared with $122 million in the third-quarter 2015.

Capital Deployment

During the third quarter, Janus Capital repurchased 938,757 shares of its common stock at an average price of $14.52 per share and a total cost of $13.6 million.

Our Viewpoint

Janus Capital has the best-in-class investment boutique, which makes it well-positioned for competitive leverage growth, along with potential for AUM improvement. Moreover, as stated earlier, management expects the recent ‘all-stock merger of equals’ agreement with Henderson Group to result in improved profitability and greater efficiency.

However, its equity-heavy portfolio makes it vulnerable to equity market volatility. Further, continued negative performance fee will limit the company’s profitability.

JANUS CAP GRP Price, Consensus and EPS Surprise

JANUS CAP GRP Price, Consensus and EPS Surprise | JANUS CAP GRP Quote

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

Among other investment managers, T. Rowe Price Group, Inc. (NASDAQ:TROW) and Invesco Ltd. (NYSE:IVZ) are slated to release their third-quarter 2016 results on Oct 27. Apollo Global Management, LLC (NYSE:APO) will report its quarterly numbers on Oct 28.

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