Franklin's (BEN) Q4 Earnings Beat Estimates, AUM Declines

Shutterstock photo

Franklin Resources Inc.BEN reported fourth-quarter fiscal 2018 (ended Sep 30) adjusted earnings of 79 cents per share, surpassing the Zacks Consensus Estimate of 74 cents. The reported figure compares favorably with the prior-year quarter figure of 76 cents per share.

Controlled expenses were reflected in the quarter. Further, steady capital deployment was a positive. However, lower revenues and reduced assets under management (AUM) were recorded. Net outflows were also an undermining factor.

For fiscal 2018, earnings per share were $1.39 versus $3.01 recorded in the prior year. Results include certain one-time items.

Including certain one-time items, net income was $502.5 million in the reported quarter compared with $425.2 million witnessed in the prior-year quarter. For fiscal 2018, net income was $764.4 billion compared with $1.7 billion in the prior year.

Lower Revenues Recorded, Costs Down

For fiscal 2018, total operating revenues edged down 1% year over year to $6.32 billion. Further, the revenue figure lagged the Zacks Consensus Estimate of $6.34 billion.

Total operating revenues decreased 6% year over year to $1.53 billion in the reported quarter, mainly due to lower investment management and other fees, sales and distribution fees, and shareholder servicing fees, partially offset by higher other revenues. Moreover, the figure missed the Zacks Consensus Estimate of $1.55 billion.

Investment management fees declined 5% year over year to $1.06 billion, while sales and distribution fees were down 10% year over year to $380.8 million. In addition, shareholder-servicing fees descended 8%, on a year-over-year basis, to $51.8 million, while other net revenues escalated 22% year over year to $35.7 million.

Total operating expenses declined 1% year over year to $1.05 billion. The fall resulted from lower sales, distribution and marketing expenses, partly offset by rise in almost all components of expenses.

As of Sep 30, 2018, total AUM came in at $717.1 billion, down 5% from $753.2 billion as of Sep 30, 2017. Notably, the quarter recorded net new outflows of $13.6 billion. Simple monthly average AUM of $724.3 billion slipped 3% on a year-over-year basis.

Stable Capital Position

As of Sep 30, 2018, cash and cash equivalents, along with investments were $8 billion, compared with $9.9 billion as of Sep 30, 2017. Furthermore, total stockholders' equity was $10.2 billion compared with $12.9 billion as of Sep 30, 2017.

During fiscal 2018, Franklin repurchased 39.9 million shares of its common stock at a total cost of $1.43 billion. Notably, during the quarter under review, the company repurchased 10.8 million shares of its common stock at a total cost of $347.9 million.

Other Development

Increasing its alternative offerings and with the expansion of robust fixed income capabilities, recently, Franklin announced an agreement under which it will acquire Benefit Street Partners L.L.C. ("BSP"), a leading alternative credit manager. As of Sep 30, 2018, BSP has around $26 billion in AUM. Notably, Franklin operates as Franklin Templeton Investments.

The deal awaits customary closing conditions and is expected to close in second-quarter fiscal 2019. On completion, Franklin Templeton's alternative offerings are expected to reflect AUM above $40 billion.

Our Viewpoint

The company's global footprint is an exceptionally favorable strategic point as its AUM is well diversified. Moreover, steady capital-deployment activities raise investors' optimism. Nevertheless, Franklin's lower revenues and fall in AUM remain concerns.

Franklin Resources, Inc. Price, Consensus and EPS Surprise

Franklin Resources, Inc. Price, Consensus and EPS Surprise | Franklin Resources, Inc. Quote

Currently, Franklin carries a Zacks Rank #5 (Strong Sell).

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

Competitive Landscape

Blackstone BX reported third-quarter 2018 economic net income (ENI) of 76 cents per share, which surpassed the Zacks Consensus Estimate of 73 cents. The figure also improved 12% from the prior-year quarter. Results benefited from increase in revenues, which was supported by growth in assets under management and inflows. However, rise in expenses was the undermining factor.

Invesco IVZ reported third-quarter adjusted earnings of 66 cents per share, lagging the Zacks Consensus Estimate by a penny. Also, the figure came in 7% below the prior-year quarter level. Results were primarily supported by slight GAAP revenue growth and a rise in AUM. However, increase in operating expenses was an undermining factor.

Ameriprise Financial Services AMP came out with quarterly earnings of $3.74 per share, beating the Zacks Consensus Estimate of $3.61 per share. This compares to earnings of $3.53 per share a year ago. These figures are adjusted for non-recurring items. This quarterly report represents an earnings surprise of 3.60%.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot trades we're targeting>>

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

The Blackstone Group L.P. (BX): Free Stock Analysis Report

Invesco Ltd. (IVZ): Free Stock Analysis Report

Franklin Resources, Inc. (BEN): Free Stock Analysis Report

Ameriprise Financial, Inc. (AMP): Free Stock Analysis Report

To read this article on Zacks.com click here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: BX , IVZ , BEN , AMP

More from Zacks.com




Equity Research

Research Brokers before you trade

Want to trade FX?