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Will Net Outflows Dampen Franklin's (BEN) Q4 Earnings?

Franklin Resources, Inc. BEN is scheduled to report fourth-quarter fiscal 2019 results, before the opening bell on Oct 25. The company’s results are projected to reflect year-over-year fall in earnings and revenues.

In the last reported quarter, Franklin’s results surpassed the Zacks Consensus Estimate. The company’s results reflected a strong capital position. However, escalating expenses, lower revenues and reduced assets under management (AUM) were recorded. Further, net outflows were an undermining factor.

In addition, Franklin recorded positive earnings surprise in three out of the trailing four quarters, the average beat being 1.7%.
 

Franklin Resources, Inc. Price and EPS Surprise

Franklin Resources, Inc. Price and EPS Surprise

Franklin Resources, Inc. price-eps-surprise | Franklin Resources, Inc. Quote

Nevertheless, the company’s activities in the fiscal fourth quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for earnings of 65 cents remained unchanged over the last seven days. Also, the figure reflects year-over-year fall of 17.7%.

Earnings Whispers

Franklin does not 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.

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

Zacks Rank: Franklin’s Zacks Rank of 4 (Sell) decreases the predictive power of ESP.

Factors at Play

Strong Markets: Performance of equity markets remained impressive during the July-September quarter. The S&P 500 Index increased nearly 2.2% year over year and 1.2% sequentially in the quarter. Moreover, the index measuring international equity performance — the MSCI EAFE — inched down 1.5% year over year but was up 1.1% sequentially. This is anticipated to have driven the California-based asset manager’s results to a large extent.

Higher AUM: Given Franklin’s AUM disclosure for September 2019 and favorable foreign-currency fluctuations, its results are predicted to display higher AUM, on a sequential basis. However, the company is expected to have recorded 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 projected to be down 3% to $693 million sequentially.

Revenue Growth: Investment management fees, which mark a significant portion of the company’s revenues, might have recorded growth in the fiscal fourth quarter. The consensus estimate for investment management fees of $1.03 billion indicates slight sequential increase. Furthermore, sales and distribution fees are projected to have improved 1.4% sequentially to $373 million in the quarter. Also, shareholder servicing fees are estimated to be have increased marginally on a sequential basis to $54 million.

Overall, the Zacks Consensus Estimate for revenues of $1.45 billion indicates a year-over-year fall of 4.8%.

Controlled Expenses: Management remains focused on effective cost control. However, management projects additional expenses of around $15 million associated with increase in termination benefits, and implementation of additional cost structure and business optimization initiatives for the quarter to be reported. The company also anticipates additional acquisition-related retention expenses of about $20 million.

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.

Fidelity National Information Services, Inc. FIS is slated to release results on Nov 5. The company has an Earnings ESP of +0.13% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Santander Consumer USA Holdings Inc. SC has an Earnings ESP of +1.01% and holds a Zacks Rank of 3. It is scheduled to report September-end quarterly figures on Oct 30.

Cullen/Frost Bankers, Inc. CFR is set to release earnings on Oct 31. The company has an Earnings ESP of +0.07% and currently carries a Zacks Rank of 3.

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Cullen/Frost Bankers, Inc. (CFR): Free Stock Analysis Report

Santander Consumer USA Holdings Inc. (SC): Free Stock Analysis Report

Franklin Resources, Inc. (BEN): Free Stock Analysis Report

Fidelity National Information Services, Inc. (FIS): 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.

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