Technology

Franklin Resources (BEN) Up 0.9% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Franklin Resources (BEN). Shares have added about 0.9% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Franklin Resources due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Franklin's Q3 Earnings Top Estimates, AUM Declines Y/Y

Franklin reported third-quarter fiscal 2020 (ended Jun 30) adjusted earnings of 70 cents per share, comfortably beating the Zacks Consensus Estimate of 53 cents. Results also compare favorably with the earnings of 55 cents per share recorded in the prior-year quarter.

The company’s results display prudent expense management during the quarter. Also, a strong capital position was a positive. However, lower revenues and AUM were major drags. Additionally, net outflows were an undermining factor.

Adjusted operating income came in at $270.8 million in the reported quarter compared with the prior-year quarter’s $430.7 million.

Including certain notable items, net income was $290.4 million or 58 cents per share compared with the $245.9 million or 48 cents per share recorded in the prior-year quarter.

Revenues Down, Costs Decline

Total operating revenues decreased 20% year over year to $1.19 billion in the fiscal third quarter, due to lower investment management, sales and distribution, shareholder-servicing and other fees.

Investment management fees dropped 21% year over year to $809.2 million, while other net revenues declined 13% to $32.2 million. Moreover, sales and distribution fees were down 18% year over year to $302.1 million. Additionally, shareholder-servicing fees dipped 15% on a year-over-year basis to $44.6 million.

Total operating expenses slipped 15% year over year to $934.4 million. This decline resulted from reduction in all components of expenses, including compensation and benefits, general, administrative and other along with sales, distribution and marketing expenses.

As of Jun 30, 2020, total AUM came in at $622.8 billion, down 13% from $715.2 billion as of Jun 30, 2019. Notably, the company recorded net new outflows of $11.3 billion during the April-June quarter. Simple monthly average AUM of $605 billion decreased 15% year on year.

Stable Capital Position

As of Jun 30, 2020, cash and cash equivalents, along with investments, were $8.2 billion compared with $8.5 billion as of Sep 30, 2019. Furthermore, total stockholders' equity was $11 billion compared with $10.6 billion as of Sep 30, 2019.

Outlook

Management expects to incur additional acquisition-related retention expenses of around $40 million during the remainder of the current fiscal year, and annual amounts beginning at $70 million in the fiscal year ending Sep 30, 2021 and gradually decreasing by about $10 million per year in the following three fiscal years. Additional termination benefit expenses of around $14 million is also projected during the remainder of the fiscal year primarily related to workforce optimization initiatives.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -6.71% due to these changes.

VGM Scores

Currently, Franklin Resources has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Franklin Resources has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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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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