Franklin Resources Inc.
) fiscal second-quarter 2012 earnings of $2.32 per share were above
the Zacks Consensus Estimate of $2.23 per share. Moreover, the
results outpaced earnings of $2.20 in the prior quarter and $2.25
in the prior-year quarter.
Results improved due to higher top-line growth. Higher assets
under management (AUM) were also positive for the quarter. Higher
operating expenses were the dampeners.
Net income was $503.2 million in the quarter compared with
$480.8 million in the prior quarter and $503.1 million in the
Quarterly Performance in Detail
Total operating revenue increased 6% sequentially and 3% year
over year to $1.8 billion, primarily due to higher investment
management fees, enhanced shareholder servicing fees and increased
sales and distribution fees. Moreover, revenue was modestly in line
with the Zacks Consensus Estimate.
Investment management fees hiked 5% sequentially and 2% year
over year to $1.1 billion, while sales and distribution fees
climbed 12% sequentially and 4% year over year to $586 million.
Shareholder servicing fees inched up 2% sequentially and 1% year
over year to $76.7 million.
Total operating expenses surged 11% sequentially and 6% year
over year to $1.2 billion. The rise was mainly the result of higher
sales, distribution and marketing expenses, information systems and
technology expenses, increased general, administrative and other
expenses as well as enhanced compensation and benefits.
As of March 31, 2012, total AUM was $725.7 billion, up from
$670.3 billion as of December 31, 2011, attributable to market
appreciation of $50.9 billion and net new inflows of $5.6 billion.
Moreover, AUM increased 3% on a year-over-year basis, mainly due to
net new flows of $14.8 billion and $10.9 billion from
Simple monthly average AUM during the quarter climbed 5%
sequentially and 3% year over year to $706.9 billion. Net new
inflows were $5.6 billion versus outflows of $15.6 billion in the
prior quarter and net inflows of $8.4 billion in the prior-year
Balance Sheet Position
As of March 31, 2012, cash and cash equivalents along with
investments were $9.3 billion compared with $9.4 billion as of
September 30, 2011, while total stockholders' equity was $9.4
billion versus $9.1 billion as of September 30, 2011.
During the reported quarter, Franklin repurchased 1.0 million
shares of its common stock for a total cost of $125.9 million. As
of March 31, 2012, the company had 215.1 million shares of common
stock outstanding versus 217.7 million shares as of September 30,
In Franklin's peer group,
) first-quarter 2012 adjusted earnings came in at 44 cents per
share, in line with the Zacks Consensus Estimate. This compares
favorably with the adjusted earnings of 42 cents in the previous
quarter and 41 cents in the prior-year quarter. On a GAAP basis,
earnings came in at 43 cents per share, compared with 44 cents in
the prior quarter and 38 cents in the year-ago quarter.
Higher net revenue was mainly responsible for the improvement in
the results. However, higher operating expenses were the primary
dampeners. Moreover, the company's assets under management and
balance sheet position remained healthy during the quarter.
Franklin's global footprint is an exceptionally favorable
strategic point as its AUM is well diversified. The company is also
poised to benefit from its strong balance sheet. Moreover, the
completed acquisitions in calendar year 2011 are expected to
strengthen its financials. However, the regulatory restrictions and
sluggish economic recovery could mar AUM growth and increase
Franklin currently retains its Zacks #2 Rank, which translates
into a short-term Buy rating. However, considering the company's
business model and fundamentals, we maintain a long-term Neutral
recommendation on the stock.
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