It has been about a month since the last earnings report for Franklin Resources (BEN). Shares have added about 0.2% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Franklin Resources due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Franklin's Q2 Earnings Beat Estimates, AUM Down
Franklin 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.
Management expects to incur additional acquisition-related retention expenses of around $40 million during the remainder of the current fiscal year, and annual amounts beginning at $70 million in the fiscal year ending Sep 30, 2021 and gradually decreasing by about $10 million per year in the following three fiscal years. Additional termination benefit expenses of around $4 million is also projected during the remainder of the fiscal year primarily related to moving certain positions to lower cost jurisdictions and outsourcing fund administration services.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted 8.6% due to these changes.
Currently, Franklin Resources has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Franklin Resources has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Franklin Resources, Inc. (BEN) : Free Stock Analysis Report
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