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Will High Equity Markets Drive Franklin's (BEN) Q4 Earnings?


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Franklin Resources, Inc. BEN is scheduled to report fourth-quarter fiscal 2018 results, before the opening bell on Oct 25. The company's results are projected to reflect year-over-year fall in earnings and revenues.

In the last reported quarter, Franklin's results came in line with the Zacks Consensus Estimate. Lower revenues and reduced assets under management (AUM) were recorded. Moreover, elevated operating expenses were a headwind. Net outflows were also an undermining factor. However, steady capital deployment was a positive.

Further, Franklin recorded positive earnings surprise in three out of the trailing four quarters, with an average beat of 6.72%.

Nevertheless, activities of the company in the fiscal fourth quarter were inadequate to win analysts' confidence. As a result, the Zacks Consensus Estimate for earnings of 74 remained unchanged over the last seven days. Also, the figure reflects year-over-year fall of 2.6%.

Earnings Whispers

According to our proven model, we cannot conclusively predict if Franklin will likely beat the Zacks Consensus Estimate this time. That's because it doesn't have the right combination of the two key ingredients - positive Earnings ESP and a Zacks Rank #3 (Hold) or better - to increase the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Earnings ESP: The company has an Earnings ESP of +0.68%. This is a major indicator of a likely positive earnings surprise for the company.

Zacks Rank: Franklin's Zacks Rank of 5 (Sell) decreases the predictive power of ESP.

It should be noted that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Factors to Influence Q4 Results

Strong Market Performance: Performance of equity markets remained decent during the Jul-Sep quarter. The S&P 500 Index gained nearly 15.7% year over year and 7.2% sequentially in the quarter. Moreover, the index measuring international equity performance - the MSCI EAFE - climbed around 2.3% year over year and 1.8% sequentially. This is anticipated to likely benefit the California-based asset manager to a large extent.

Lower AUM: Given Franklin's AUM disclosure for September 2018 and unfavorable foreign currency fluctuations, its results are predicted to display lower AUM, on a sequential basis. In addition, the company is expected to record outflows mainly tied with U.S. and non-U.S. mutual funds. Nevertheless, decent equity markets performance can be a tailwind.

Per the Zacks Consensus Estimate, total AUM for the to-be-reported quarter is expected to edge down to $721 million sequentially.

Revenues to Disappoint: Investment management fees, which mark a significant portion of the company's revenues, might reflect a dip in the fourth quarter. The consensus estimate for investment management fees of $1.1 billion indicates nearly 2.7% year-over-year decline. Furthermore, sales and distribution fees are projected to be down 7.1% year over year to $392 million in the quarter to be reported.

Overall, the Zacks Consensus Estimate for revenues of $1.6 billion indicates a year-over-year fall of 4.4%.

Controlled Expenses: Management remains focused on effective cost control. While potential investments on the technology front may escalate expenses in fiscal 2018 (6.5-7.5%), previous cost-cutting initiatives are likely to infuse optimism.

Other Stocks That Warrant a Look

Here are some stocks you may want to consider, as according to our model these have the right combination of elements to post an earnings beat this quarter.

The Earnings ESP for T. Rowe Price Group, Inc. TROW is +0.78% and the stock carries a Zacks Rank of 2. The company is scheduled to release third-quarter results on Oct 25. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Cullen/Frost Bankers, Inc. CFR has an Earnings ESP of +0.07% and carries a Zacks Rank of 3. It is slated to report earnings on Oct 25.

SVB Financial Group SIVB has an Earnings ESP of +1.22% and sports a Zacks Rank #1. It is set to report its quarterly numbers on Oct 25.

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Cullen/Frost Bankers, Inc. (CFR): Free Stock Analysis Report

SVB Financial Group (SIVB): Free Stock Analysis Report

T. Rowe Price Group, Inc. (TROW): Free Stock Analysis Report

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

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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: CFR , SIVB , TROW , BEN



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