Will Lower AUM Drag Down Franklin's (BEN) Earnings in Q2?

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Franklin Resources, Inc. BEN is scheduled to report second-quarter fiscal 2018 results, before the opening bell on Apr 26. Earnings are projected to rise year over year, while revenues might decline.

Last quarter, Franklin outpaced the Zacks Consensus Estimate, driven by rise in revenues. Also, assets under management (AUM) growth remained strong.

Further, Franklin recorded positive earnings surprise in three out of the trailing four quarters, with an average positive surprise of 8.34%.

Franklin Resources, Inc. Price and EPS Surprise

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

Nevertheless, activities of the company in the fiscal second quarter were inadequate to win analysts' confidence. As a result, the Zacks Consensus Estimate for earnings of 75 remained unchanged over the last seven days. However, the figure reflects year-over-year rise of 1.35%.

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 .

Zacks ESP: The company has an Earnings ESP of 0.00%.

Zacks Rank: Franklin's Zacks Rank #4 (Sell) further 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 Q2 Results

Mixed Market Performance: Performance of equity markets remained mixed during the January-March quarter. The S&P 500 Index gained nearly 11.8% year over year, but declined 1.2% sequentially in the quarter. Moreover, the index measuring international equity performance - the MSCI EAFE - climbed around 2.5% year over year, however was down 5.1% sequentially. This is anticipated to likely benefit this California-based asset manager to a lesser extent.

Lower AUM: Given Franklin's AUM disclosure for March 2018 and equity markets performance, 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. Per the Zacks Consensus Estimate, total AUM for the to-be-reported quarter is expected to edge down 1.2% to $745 million on a sequential basis.

Decrease in Revenues: Investment management fees, which mark a significant portion of the company's revenues, might decline on the back of quarterly market performance. The consensus estimate for investment management fees of $1.1 billion indicates nearly 1% growth year over year. However, sales and distribution fees are projected to be down 3.2% year over year to $417 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 0.86%.

Controlled Expenses: Management remains focused on effective cost control. While potential investments in the technology front might escalate expenses in fiscal 2018, previous cost-cutting initiatives are likely to reflect optimism.

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 SVB Financial Group SIVB is +1.38% and the stock carries a Zacks Rank of 3. The company is scheduled to release first-quarter results on Apr 26. 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 +0.31% and carries a Zacks Rank of 3. It is slated to report results on Apr 26.

Eaton Vance Corp. EV has an Earnings ESP of +0.84% and a Zacks Rank #3. It is set to report results on May 23.

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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 , BEN , EV

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