Australia markets closed

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

Zacks Equity Research

Franklin Resources Inc. BEN reported second-quarter fiscal 2020 (ended Mar 31) adjusted earnings of 66 cents per share, beating the Zacks Consensus Estimate of 44 cents. Results also compare favorably with the earnings of 65 cents per share recorded in the prior-year quarter.

The company’s results display prudent expense management during the quarter. Also, a strong capital position was a positive. However, lower revenues and assets under management (AUM) were major drags. Also, net outflows were an undermining factor.

Adjusted operating income came in at $385.9 million in the reported quarter compared with the prior-year quarter’s $406.6 million.

Including certain notable items, net income was $79.1 million or 16 cents per share compared with the $367.5 million or 72 cents per share recorded in the prior-year quarter.

Revenues Down, Costs Decline

Total operating revenues decreased 7% year over year to $1.34 billion in the fiscal second quarter, mainly due to lower investment management, sales and distribution and shareholder-servicing fees, partly offset by higher other fees. The figure, however, surpassed the Zacks Consensus Estimate of $1.33 billion.

Investment management fees dropped 8% year over year to $908.2 million, while other net revenues climbed 30% to $33.6 million. However, sales and distribution fees were down 5% year over year to $341.7 million. Additionally, shareholder-servicing fees dipped 4% on a year-over-year basis to $54.8 million.

Total operating expenses were down 7% year over year to $982.2 million. This decline resulted from lower compensation and benefits, general, administrative and other along with sales, distribution and marketing expenses. These decreases were partly muted by higher occupancy expenses.

As of Mar 31, 2020, total AUM came in at $580.3 billion, down 19% from $712.3 billion as of Mar 31, 2019. Notably, the company recorded net new outflows of $25.4 billion during the January-March quarter. Simple monthly average AUM of $655.8 billion decreased 5% year on year.

Stable Capital Position

As of Mar 31, 2020, cash and cash equivalents, along with investments, were $8.2 billion compared with $8.5 billion as of Sep 30, 2019. Furthermore, total stockholders' equity was $10.8 billion compared with $10.6 billion as of Sep 30, 2019.

During the March-end quarter, the company repurchased 2.9 million shares of its common stock at a total cost of $64.6 million.

Our Viewpoint

The company’s global footprint is an exceptionally favorable strategic point as its AUM is well diversified. Though prudent cost-control measures and strategic moves might lend some support to the bottom line, a persistent decline in investment-management fees on market fluctuations and foreign-exchange translations amid the coronavirus crisis will likely impede AUM growth.

The proposed acquisition of Legg Mason remains on track and is likely to create a strong separately-managed account business, with the aim to grab market opportunities and scale the client base higher, striking a balance between institutional and retail client AUM.

Franklin Resources, Inc. Price, Consensus and EPS Surprise

Franklin Resources, Inc. Price, Consensus and EPS Surprise

Franklin Resources, Inc. price-consensus-eps-surprise-chart | Franklin Resources, Inc. Quote

Currently, Franklin carries a Zacks Rank #4 (Sell).

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

Competitive Landscape

Invesco IVZ reported first-quarter 2020 adjusted earnings of 34 cents per share, missing the Zacks Consensus Estimate of 56 cents. Also, the bottom line plummeted 39.3% from the prior-year quarter. Escalating operating expenses and net outflows were the major headwinds amid the coronavirus scare. Nevertheless, a rise in the AUM balance and higher revenues — driven by the OppenheimerFunds buyout — were the supporting factors.

Cohen & Steers’ CNS adjusted earnings of 61 cents per share missed the Zacks Consensus Estimate of 66 cents in the first quarter. However, the bottom line came in 5.2% higher than the year-ago reported figure. Rise in expenses and fall in AUM balance were the major headwinds. Yet, improvement in revenues and modest asset inflows offered some support.

T. Rowe Price TROW delivered first-quarter 2020 adjusted earnings per share of $1.87, which outpaced the Zacks Consensus Estimate of $1.85. The reported figure came in line with the year-ago quarter’s reported tally. Results were aided by higher revenues on solid growth in investment advisory fees. Nonetheless, escalating expenses were an undermining factor. Also, the AUM declined year over year.

Today's Best Stocks from Zacks

Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.

This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.

See their latest picks free >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Franklin Resources, Inc. (BEN) : Free Stock Analysis Report
T. Rowe Price Group, Inc. (TROW) : Free Stock Analysis Report
Invesco Ltd. (IVZ) : Free Stock Analysis Report
Cohen & Steers Inc (CNS) : Free Stock Analysis Report
To read this article on click here.
Zacks Investment Research