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Franklin Resources, Inc. Announces Second Quarter Results

Franklin Resources, Inc. (the "Company") [NYSE: BEN] today announced net income1 of $79.1 million or $0.16 per diluted share for the quarter ended March 31, 2020, as compared to $350.5 million or $0.70 per diluted share for the previous quarter, and $367.5 million or $0.72 per diluted share for the quarter ended March 31, 2019. The mark-to-market of the Company’s investment portfolio resulted in significant nonoperating losses that drove the decline in net income for the quarter ended March 31, 2020. Operating income was $356.1 million for the quarter ended March 31, 2020, as compared to $392.7 million for the previous quarter and $379.5 million in the prior year.

As supplemental information, the Company is providing certain adjusted performance measures which are based on methodologies other than generally accepted accounting principles2. Adjusted net income2 was $332.8 million and adjusted diluted earnings per share was $0.66 for the quarter ended March 31, 2020, as compared to $338.3 million and $0.67 for the previous quarter, and $330.6 million and $0.65 for the quarter ended March 31, 2019. Adjusted operating income2 was $385.9 million for the quarter ended March 31, 2020, as compared to $405.5 million for the previous quarter and $406.6 million in the prior year.

"While the global impact of the COVID-19 pandemic is just beginning to be understood, the virus has already profoundly altered our world and its implications are far reaching," said Jenny Johnson, President and CEO of Franklin Resources, Inc. "Above all else, this pandemic is a humanitarian issue – no matter where you live around the globe, the virus has touched your life in some way. We offer our heartfelt gratitude to the frontline healthcare workers and other professionals who are keeping essential operations functioning.

"Franklin Templeton remains focused on the health and safety of our employees and their families, and our ability to maintain high-quality service and stability for our clients is paramount. We have fully activated our global business continuity plan to protect our employees and have seamlessly moved to over 97% of our staff working remotely. We are extremely proud of and grateful for how our employees have adapted with great agility to operate under these extraordinary conditions and keep our business running efficiently.

"Being an active manager during this unprecedented time has allowed us to find compelling investment opportunities amidst sharp dislocations across sectors. With this backdrop, security selection is critical. During the recent market volatility, we’re pleased to see that our sound investment disciplines are producing strong results, notably in the areas of U.S. equity, municipal bonds, global macro, and global equity.

"Our acquisition of Legg Mason remains on track to close in the third quarter of the calendar year, and integration plans are well underway. We continue to see the long-term value of these combined franchises and that our strategy to diversify and create new opportunities is the right one. There’s excitement at both firms as we continue to move forward with planning for a combined company and working to satisfy the conditions to close. Our combined company will offer a broader range of leading investment strategies, a more encompassing geographical presence, a diversified client base, and a resilient and adaptable platform that can aptly navigate market cycles. It’s also premised on the stability and continuity of our client-facing teams, while providing opportunities to invest in our sales and client service model. We are very focused on integration planning to meet these goals. Following the close of the transaction, our financial resources and flexibility will remain robust, an important foundation of our company."

 

 

Quarter Ended

 

% Change

 

Quarter Ended

 

% Change

 

 

31-Mar-20

 

31-Dec-19

 

Qtr. vs. Qtr.

31-Mar-19

 

Year vs. Year

Financial Results

 

 

 

 

 

 

 

 

 

(in millions, except per share data)

 

 

 

 

 

 

 

 

 

Operating revenues

 

$

1,338.3

 

 

$

1,412.7

 

 

(5

%)

$

1,433.8

 

 

(7

%)

Operating income

 

356.1

 

 

392.7

 

 

(9

%)

379.5

 

 

(6

%)

Operating margin

 

26.6

%

 

27.8

%

 

 

26.5

%

 

 

 

 

 

 

 

 

 

 

 

 

Net income¹

 

$

79.1

 

 

$

350.5

 

 

(77

%)

$

367.5

 

 

(78

%)

Diluted earnings per share

 

0.16

 

 

0.70

 

 

(77

%)

0.72

 

 

(78

%)

 

 

 

 

 

 

 

 

 

 

As adjusted (non-GAAP):2

 

 

 

 

 

 

 

 

 

Adjusted operating income

 

$

385.9

 

 

$

405.5

 

 

(5

)%

$

406.6

 

 

(5

)%

Adjusted operating margin

 

43.2

%

 

42.6

%

 

 

41.9

%

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted net income

 

$

332.8

 

 

$

338.3

 

 

(2

)%

$

330.6

 

 

1

%

Adjusted diluted earnings per share

 

0.66

 

 

0.67

 

 

(1

)%

0.65

 

 

2

%

 

 

 

 

 

 

 

 

 

 

Assets Under Management

 

 

 

 

 

 

 

 

 

(in billions)

 

 

 

 

 

 

 

 

 

Ending

 

$

580.3

 

 

$

698.3

 

 

(17

%)

$

712.3

 

 

(19

%)

Average3

 

655.8

 

 

693.8

 

 

(5

%)

688.6

 

 

(5

%)

Net flows

 

(25.4

)

 

(12.3

)

 

 

(6.3

)

 

 

Total assets under management ("AUM") were $580.3 billion at March 31, 2020, down $118.0 billion or 17% during the quarter due to $98.2 billion of net market change, distributions and other and $25.4 billion of net outflows, slightly offset by $5.6 billion from an acquisition.

Cash and cash equivalents and investments were $7.6 billion at March 31, 2020, as compared to $7.4 billion at September 30, 2019. Including the Company’s direct investments in consolidated investment products, cash and cash equivalents and investments were $8.2 billion at March 31, 2020, as compared to $8.5 billion at September 30, 2019. Total stockholders’ equity was $10.8 billion at March 31, 2020, as compared to $10.6 billion at September 30, 2019. The Company had 495.3 million shares of common stock outstanding at March 31, 2020, as compared to 499.3 million shares outstanding at September 30, 2019. The Company repurchased 2.9 million shares of its common stock for a total cost of $64.6 million during the quarter ended March 31, 2020.

Conference Call Information

A commentary on the results by President and CEO Jenny Johnson, Executive Chairman Greg Johnson and Executive Vice President and CFO Matthew Nicholls will be available today at approximately 8:30 a.m. Eastern Time. Access to the commentary will be available via investors.franklinresources.com.

Ms. Johnson, Mr. Johnson and Mr. Nicholls will also lead a live teleconference today at 11:00 a.m. Eastern Time to answer questions of a material nature. Access to the teleconference will be available via investors.franklinresources.com or by dialing (877) 407-8293 in the U.S. and Canada or (201) 689-8349 internationally. A replay of the teleconference can also be accessed by calling (877) 660-6853 in the U.S. and Canada or (201) 612-7415 internationally using access code 13701317, after 2:00 p.m. Eastern Time on April 30, 2020 through May 30, 2020.

Analysts and investors are encouraged to review the Company’s recent filings with the U.S. Securities and Exchange Commission and to contact Investor Relations at (650) 312-4091 before the live teleconference for any clarifications or questions related to the earnings release or commentary.

FRANKLIN RESOURCES, INC.

CONSOLIDATED STATEMENTS OF INCOME

Unaudited

(in millions, except per share data and AUM)

 

Three Months Ended
March 31,

 

%

Change

 

Six Months Ended
March 31,

 

%
Change

 

2020

 

2019

 

 

2020

 

2019

 

Operating Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Investment management fees

 

$

908.2

 

 

$

992.4

 

 

(8

%)

 

$

1,887.9

 

 

$

1,964.2

 

 

(4

%)

Sales and distribution fees

 

341.7

 

 

358.5

 

 

(5

%)

 

693.2

 

 

713.3

 

 

(3

%)

Shareholder servicing fees

 

54.8

 

 

57.1

 

 

(4

%)

 

104.8

 

 

112.2

 

 

(7

%)

Other

 

33.6

 

 

25.8

 

 

30

%

 

65.1

 

 

55.6

 

 

17

%

Total operating revenues

 

1,338.3

 

 

1,433.8

 

 

(7

%)

 

2,751.0

 

 

2,845.3

 

 

(3

%)

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Sales, distribution and marketing

 

423.9

 

 

449.4

 

 

(6

%)

 

867.8

 

 

893.9

 

 

(3

%)

Compensation and benefits

 

365.7

 

 

409.6

 

 

(11

%)

 

755.1

 

 

764.6

 

 

(1

%)

Information systems and technology

 

61.8

 

 

62.1

 

 

0

%

 

124.3

 

 

123.0

 

 

1

%

Occupancy

 

34.4

 

 

31.4

 

 

10

%

 

68.9

 

 

62.6

 

 

10

%

General, administrative and other

 

96.4

 

 

101.8

 

 

(5

%)

 

186.1

 

 

210.2

 

 

(11

%)

Total operating expenses

 

982.2

 

 

1,054.3

 

 

(7

%)

 

2,002.2

 

 

2,054.3

 

 

(3

%)

Operating Income

 

356.1

 

 

379.5

 

 

(6

%)

 

748.8

 

 

791.0

 

 

(5

%)

Other Income (Expenses)

 

 

 

 

 

 

 

 

 

 

 

 

Investment and other income (losses), net

 

(249.0

)

 

118.7

 

 

NM

 

(189.4

)

 

59.6

 

 

NM

Interest expense

 

(4.2

)

 

(5.7

)

 

(26

%)

 

(10.9

)

 

(12.1

)

 

(10

%)

Other income (expenses), net

 

(253.2

)

 

113.0

 

 

NM

 

(200.3

)

 

47.5

 

 

NM

Income before taxes

 

102.9

 

 

492.5

 

 

(79

%)

 

548.5

 

 

838.5

 

 

(35

%)

Taxes on income

 

44.1

 

 

110.9

 

 

(60

%)

 

141.6

 

 

196.9

 

 

(28

%)

Net income

 

58.8

 

 

381.6

 

 

(85

%)

 

406.9

 

 

641.6

 

 

(37

%)

Less: net income (loss) attributable to

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

(28.5

)

 

21.5

 

 

NM

 

(19.5

)

 

6.1

 

 

NM

Nonredeemable noncontrolling interests

 

8.2

 

 

(7.4

)

 

NM

 

(3.2

)

 

(7.9

)

 

(59

%)

Net Income Attributable to Franklin Resources, Inc.

 

$

79.1

 

 

$

367.5

 

 

(78

%)

 

$

429.6

 

 

$

643.4

 

 

(33

%)

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per Share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.16

 

 

$

0.72

 

 

(78

%)

 

$

0.86

 

 

$

1.26

 

 

(32

%)

Diluted

 

0.16

 

 

0.72

 

 

(78

%)

 

0.86

 

 

1.25

 

 

(31

%)

Dividends Declared per Share

 

$

0.27

 

 

$

0.26

 

 

4

%

 

$

0.54

 

 

$

0.52

 

 

4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Shares Outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

491.5

 

 

504.7

 

 

(3

%)

 

493.1

 

 

507.6

 

 

(3

%)

Diluted

 

491.8

 

 

505.1

 

 

(3

%)

 

493.6

 

 

508.0

 

 

(3

%)

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Margin

 

26.6

%

 

26.5

%

 

 

 

27.2

%

 

27.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AUM (in billions)

 

 

 

 

 

 

 

 

 

 

 

 

Ending

 

$

580.3

 

 

$

712.3

 

 

(19

%)

 

$

580.3

 

 

$

712.3

 

 

(19

%)

Average

 

655.8

 

 

688.6

 

 

(5

%)

 

671.4

 

 

691.1

 

 

(3

%)

Net flows

 

(25.4

)

 

(6.3

)

 

 

 

(37.7

)

 

(13.6

)

 

 

FRANKLIN RESOURCES, INC.

CONSOLIDATED STATEMENTS OF INCOME

Unaudited

(in millions, except per share data)

 

Three Months Ended

 

%

Change

 

Three Months Ended

 

31-Mar-20

 

31-Dec-19

 

 

30-Sep-19

 

30-Jun-19

 

31-Mar-19

Operating Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Investment management fees

 

$

908.2

 

 

$

979.7

 

 

(7

%)

 

$

1,001.6

 

 

$

1,019.4

 

 

$

992.4

 

Sales and distribution fees

 

341.7

 

 

351.5

 

 

(3

%)

 

363.8

 

 

367.5

 

 

358.5

 

Shareholder servicing fees

 

54.8

 

 

50.0

 

 

10

%

 

51.4

 

 

52.7

 

 

57.1

 

Other

 

33.6

 

 

31.5

 

 

7

%

 

35.7

 

 

37.1

 

 

25.8

 

Total operating revenues

 

1,338.3

 

 

1,412.7

 

 

(5

%)

 

1,452.5

 

 

1,476.7

 

 

1,433.8

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Sales, distribution and marketing

 

423.9

 

 

443.9

 

 

(5

%)

 

463.3

 

 

462.4

 

 

449.4

 

Compensation and benefits

 

365.7

 

 

389.4

 

 

(6

%)

 

382.4

 

 

437.7

 

 

409.6

 

Information systems and technology

 

61.8

 

 

62.5

 

 

(1

%)

 

69.8

 

 

65.7

 

 

62.1

 

Occupancy

 

34.4

 

 

34.5

 

 

0

%

 

38.8

 

 

32.2

 

 

31.4

 

General, administrative and other

 

96.4

 

 

89.7

 

 

7

%

 

106.7

 

 

103.8

 

 

101.8

 

Total operating expenses

 

982.2

 

 

1,020.0

 

 

(4

%)

 

1,061.0

 

 

1,101.8

 

 

1,054.3

 

Operating Income

 

356.1

 

 

392.7

 

 

(9

%)

 

391.5

 

 

374.9

 

 

379.5

 

Other Income (Expenses)

 

 

 

 

 

 

 

 

 

 

 

 

Investment and other income (losses), net

 

(249.0

)

 

59.6

 

 

NM

 

11.3

 

 

44.2

 

 

118.7

 

Interest expense

 

(4.2

)

 

(6.7

)

 

(37

%)

 

(7.0

)

 

(5.6

)

 

(5.7

)

Other income (expenses), net

 

(253.2

)

 

52.9

 

 

NM

 

4.3

 

 

38.6

 

 

113.0

 

Income before taxes

 

102.9

 

 

445.6

 

 

(77

%)

 

395.8

 

 

413.5

 

 

492.5

 

Taxes on income4

 

44.1

 

 

97.5

 

 

(55

%)

 

86.5

 

 

158.9

 

 

110.9

 

Net income

 

58.8

 

 

348.1

 

 

(83

%)

 

309.3

 

 

254.6

 

 

381.6

 

Less: net income (loss) attributable to

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

(28.5

)

 

9.0

 

 

NM

 

 

 

0.1

 

 

21.5

 

Nonredeemable noncontrolling interests

 

8.2

 

 

(11.4

)

 

NM

 

2.9

 

 

8.6

 

 

(7.4

)

Net Income Attributable to Franklin Resources, Inc.

 

$

79.1

 

 

$

350.5

 

 

(77

%)

 

$

306.4

 

 

$

245.9

 

 

$

367.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per Share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.16

 

 

$

0.70

 

 

(77

%)

 

$

0.61

 

 

$

0.48

 

 

$

0.72

 

Diluted

 

0.16

 

 

0.70

 

 

(77

%)

 

0.61

 

 

0.48

 

 

0.72

 

Dividends Declared per Share

 

$

0.27

 

 

$

0.27

 

 

0

%

 

$

0.26

 

 

$

0.26

 

 

$

0.26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Shares Outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

491.5

 

 

494.7

 

 

(1

%)

 

497.9

 

 

501.6

 

 

504.7

 

Diluted

 

491.8

 

 

495.3

 

 

(1

%)

 

498.8

 

 

502.3

 

 

505.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Margin

 

26.6

%

 

27.8

%

 

 

 

27.0

%

 

25.4

%

 

26.5

%

AUM AND FLOWS

(in billions)

 

Three Months Ended
March 31,

 

%

Change

 

Six Months Ended
March 31,

 

%
Change

 

2020

 

2019

 

 

2020

 

2019

 

Beginning AUM

 

$

698.3

 

 

$

649.9

 

 

7

%

 

$

692.6

 

 

$

717.1

 

 

(3

%)

Long-term sales

 

27.7

 

 

27.0

 

 

3

%

 

50.4

 

 

48.7

 

 

3

%

Long-term redemptions

 

(54.3

)

 

(36.2

)

 

50

%

 

(100.0

)

 

(78.6

)

 

27

%

Long-term net exchanges

 

(1.5

)

 

 

 

NM

 

(1.6

)

 

(0.5

)

 

220

%

Long-term reinvested distributions

 

2.7

 

 

2.9

 

 

(7

%)

 

13.5

 

 

16.8

 

 

(20

%)

Net flows

 

(25.4

)

 

(6.3

)

 

303

%

 

(37.7

)

 

(13.6

)

 

177

%

Acquisitions

 

5.6

 

 

26.4

 

 

(79

%)

 

5.6

 

 

26.4

 

 

(79

%)

Net market change, distributions and other5

 

(98.2

)

 

42.3

 

 

NM

 

(80.2

)

 

(17.6

)

 

356

%

Ending AUM

 

$

580.3

$

712.3

 

(19

%)

 

$

580.3

 

$

712.3

 

(19

%)

AUM BY INVESTMENT OBJECTIVE

(in billions)

 

31-Mar-20

 

31-Dec-19

 

% Change

 

30-Sep-19

 

30-Jun-19

 

31-Mar-19

Equity

 

 

 

 

 

 

 

 

 

 

 

 

Global/international

 

$

114.7

 

 

$

163.5

 

 

(30

%)

 

$

158.4

 

 

$

169.8

 

 

$

174.4

 

United States

 

92.7

 

 

117.0

 

 

(21

%)

 

112.1

 

 

112.4

 

 

109.5

 

Total equity

 

207.4

 

 

280.5

 

 

(26

%)

 

270.5

 

 

282.2

 

 

283.9

 

Multi-Asset/Balanced

 

118.2

 

 

136.5

 

 

(13

%)

 

134.3

 

 

136.0

 

 

134.7

 

Fixed Income

 

 

 

 

 

 

 

 

 

 

 

 

Tax-free

 

64.9

 

 

66.7

 

 

(3

%)

 

66.3

 

 

65.0

 

 

63.4

 

Taxable

 

 

 

 

 

 

 

 

 

 

 

 

Global/international

 

113.3

 

 

136.7

 

 

(17

%)

 

144.6

 

 

154.9

 

 

152.5

 

United States

 

65.8

 

 

67.5

 

 

(3

%)

 

67.4

 

 

67.9

 

 

68.9

 

Total fixed income

 

244.0

 

 

270.9

 

 

(10

%)

 

278.3

 

 

287.8

 

 

284.8

 

Cash Management

 

10.7

 

 

10.4

 

 

3

%

 

9.5

 

 

9.2

 

 

8.9

 

Total AUM

 

$

580.3

 

 

$

698.3

 

 

(17

%)

 

$

692.6

 

 

$

715.2

 

 

$

712.3

 

Average AUM for the Three-Month Period

$

655.8

 

 

$

693.8

 

 

(5

%)

 

$

702.0

 

 

$

710.8

 

 

$

688.6

 

AUM AND FLOWS - UNITED STATES AND INTERNATIONAL6

 

 

As of and for the Three Months Ended

(in billions)

 

31-Mar-20

...