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Franklin (BEN) Beats on Q1 Earnings; Revenues Down Y/Y

Driven by lower expenses, Franklin Resources Inc.BEN recorded a positive earnings surprise of 13.2% in first-quarter fiscal 2017. The company reported earnings of 77 cents per share, beating the Zacks Consensus Estimate of 68 cents. Moreover, results compared favorably with the prior-year quarter earnings of 74 cents per share.

Results were positively driven by a decline in expenses. However, net outflows and lower revenues were undermining factors.

Net income was $440.2 million in the quarter compared with $447.8 million in the prior-year quarter.

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Lower Revenues Recorded, Costs Falls

Total operating revenue declined 11%, year over year, to $1.56 billion in the quarter, mainly due to lower investment management, sales and distribution and shareholder servicing fees. Further, revenues lagged the Zacks Consensus Estimate of $1.58 billion.

Investment management fees dipped 10% year over year to $1.06 billion, while sales and distribution fees were down 12% year over year to $419.3 million. Moreover, shareholder servicing fees descended 9%, on a year-over-year basis, to $56.6 million; while other net revenue plunged 30% year over year to $21.7 million.

Total operating expenses decreased 12% year over year to $973.9 million. The fall resulted mainly from a decline in sales, distribution and marketing, along with reduced compensation and benefits, general, administrative, and other and occupancy expenses.

As of Dec 31, 2016, total AUM was $720.0 billion, down 6% from $763.9 billion as of Dec 31, 2015. Notably, the quarter recorded net new outflows of $14.4 billion. Simple monthly average AUM of $722.7 billion dipped 8% year over year.

Stable Capital Position

As of Dec 31, 2016, cash and cash equivalents, along with investments were $9.7 billion, compared with $10.7 billion as of Sep 30, 2016. Moreover, total stockholders' equity was $12.2 billion, compared with $12.5 billion as of Sep 30, 2016.

During the reported quarter, Franklin repurchased 7.1 million shares of its common stock at a total cost of $261.7 million.

Our Viewpoint

Franklin posted an impressive quarter. The company's global footprint is an exceptionally favorable strategic point as its AUM is well diversified. Further, the company reflected prudent expense management. However, regulatory restrictions and sluggish economic recovery could mar AUM growth and escalate costs. Moreover, lower revenues remain a concern.

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

Among other investment managers, T. Rowe Price Group, Inc. TROW reported negative earnings surprise of 14.2% for fourth-quarter 2016. Adjusted earnings per share of $1.21 missed the Zacks Consensus Estimate of $1.41. However, the bottom line improved 13.1% from the year-ago earnings of $1.07.

Federated Investors, Inc. FII posted a positive earnings surprise of around 2% for fourth-quarter 2016, marking the seventh straight quarter of an earnings beat. Earnings per share of 52 cents beat the Zacks Consensus Estimate by a penny and also improved 13%, year over year, from 46 cents.

Further, Legg Mason, Inc. LM is scheduled to report December quarter-end results on Feb 1.

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

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Federated Investors, Inc. (FII): 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.


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

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