Franklin (BEN) Q2 Earnings Surpass Estimates, Revenues Fall

Franklin Resources Inc. BEN reported second-quarter fiscal 2023 (ended Mar 31) adjusted earnings of 61 cents per share, which beat the Zacks Consensus Estimate of 57 cents. However, the bottom line declined 36% from the prior-year quarter. Our estimate for earnings was 55 cents.

While a rise in assets under management (AUM) was a tailwind, BEN’s results display top-line weakness in the quarter. Rising expenses affected the bottom line to some extent.

Net income attributable to BEN was $194.2 million, down 44% year over year. Our estimate for the metric was $163.5 million.

Revenues Fall, Costs Rise

Total operating revenues declined 7% year over year to $1.92 billion in the fiscal second quarter on lower investment management fees. Nonetheless, the reported figure outpaced the Zacks Consensus Estimate of $1.83 billion. We had projected operating revenues of $1.72 billion.

Investment management fees fell 5% year over year to $1.57 billion. We projected the same to be $1.39 billion. Sales and distribution fees were 19% down to $301.4 million. Shareholder-servicing fees declined 17% on a year-over-year basis to $43.3 million. Other revenues fell 2% to $9.2 million.

Total operating expenses were 3% up year over year to $1.67 billion. We projected the same to be $1.50 billion.

Franklin reported an operating margin of 13.2% compared with 22.2% in the year-ago quarter.

AUM Rises

As of Mar 31, 2023, total AUM was $1.42 trillion, up 2% sequentially. Franklin’s long-term net flows were $3.7 billion in the reported quarter.

Average AUM was $1.41 trillion, up 5% sequentially.

Capital Position

As of Mar 31, 2023, cash and cash equivalents and investments were $5.8 billion, while total stockholders' equity was $12.4 billion.

In the reported quarter, Franklin repurchased 0.1 million shares for $3.6 million.

Our Viewpoint

The company’s efforts to diversify its business into asset classes that are seeing growing client demand will likely propel AUM growth. Its acquisitions have expanded alternative investments and multi-asset solution platforms. 

However, a challenging operating backdrop and several geopolitical concerns might significantly affect its AUM. Due to the focus on technological upgrades, costs may rise and weigh on bottom-line growth.

Franklin Resources, Inc. Price, Consensus and EPS Surprise

Franklin Resources, Inc. Price, Consensus and EPS Surprise

Franklin Resources, Inc. price-consensus-eps-surprise-chart | 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.

Performance of Other Asset Managers

BlackRock, Inc.’s BLK first-quarter 2023 adjusted earnings of $7.93 per share surpassed the Zacks Consensus Estimate of $7.71. However, the figure reflects a decrease of 16.7% from the year-ago quarter. Our estimate for adjusted earnings was $7.37.

BLK's results benefited from a decline in expenses. However, lower revenues and AUM balance were major headwinds.

SEI Investments Co.’s SEIC first-quarter 2023 earnings of 79 cents per share missed the Zacks Consensus Estimate of 82 cents. The bottom line reflects a decline of 41.9% from the prior-year quarter. Our estimate for earnings was 78 cents.

SEIC's results were adversely impacted by lower revenues. Also, marginally higher expenses created a headwind. Nevertheless, an increase in the AUM balance positively impacted the results in the quarter.

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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.

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