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

Franklin Resources Inc. BEN 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 assets under management (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.

Our Viewpoint

The company’s global footprint is an exceptionally favorable strategic point as its AUM is well diversified. Though prudent cost-control measures and strategic moves might lend some support to the bottom line, a persistent decline in investment-management fees on market fluctuations and foreign-exchange translations amid the coronavirus crisis will likely impede AUM growth.

The proposed acquisition of Legg Mason remains on track and is likely to create a solid separately-managed account business, with the aim to grab market opportunities and scale the client base higher, striking a balance between institutional and retail client AUM.
 

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 sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

 

Performance of Investment Managers

Blackstone’s BX second-quarter 2020 distributable earnings of 43 cents per share were in line with the Zacks Consensus Estimate. However, the figure declined 25% from the prior-year quarter. The results reflect an improving assets balance, mainly driven by inflows. However, a decline in segment revenues and higher operating expenses were the undermining factors.

Cohen & Steers’ CNS second-quarter 2020 adjusted earnings of 54 cents per share missed the Zacks Consensus Estimate of 55 cents. Moreover, the bottom line came in 12.9% lower than the year-ago reported figure. Results were primarily hurt by a decline in revenues, partly offset by lower expenses. In addition, despite net inflows, the company recorded a fall in AUM balance.

Affiliated Managers Group Inc.’s AMG second-quarter economic earnings of $2.74 per share surpassed the Zacks Consensus Estimate of $2.70. Nevertheless, the bottom line declined 17.7% year over year. The results reflected lower operating expenses and a robust liquidity position. However, lower revenues, fall in AUM balance and decline in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were headwinds.

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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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