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What Awaits Franklin Resources (BEN) in Fiscal Q3 Earnings?

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Franklin Resources, Inc. BEN is scheduled to report third-quarter fiscal 2022 results on Jul 28. BEN’s results are anticipated to indicate year-over-year declines in earnings and revenues.

In the last reported quarter, Franklin’s earnings beat the Zacks Consensus Estimate on top-line strength. The higher assets under management (“AUM”) balance was a positive. However, rising expenses were dragging.

Franklin’s earnings beat estimates in all the trailing four quarters, the average surprise being 29.3%.

Franklin Resources, Inc. Price and EPS Surprise


Franklin Resources, Inc. Price and EPS Surprise
Franklin Resources, Inc. Price and EPS Surprise

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

BEN’s activities in the to-be-reported quarter were inadequate to win analysts’ confidence. The Zacks Consensus Estimate for earnings of 76 cents per share for the fiscal third quarter has moved down 5% in the past 30 days. Also, the figure suggests a decline of 20.8% from the prior quarter's reported number. The consensus estimate for revenues is pegged at $2.07 billion, suggesting a decline of 4.6% from the prior quarter’s reported number.

Key Developments During the Quarter

Franklin announced the acquisition of BNY Alcentra Group Holdings, Inc. in May. Per the deal, Franklin will pay $350 million in cash upon the deal closure and up to a further $350 million in contingent consideration, dependent on the achievement of certain performance thresholds over the next four years.

Through the acquisition of Alcentra, Franklin’s U.S. alternative credit specialist investment manager, Benefit Street Partners, will be able to expand its alternative credit capabilities and presence in Europe, doubling its AUM to $77 billion globally.

The transaction is expected to continue to strengthen the breadth and scale of Franklin’s alternative asset strategies, bringing the firm-wide alternative AUM to $257 billion.

Key Q3 Estimates & Factors to Note

In the June-end quarter, the S&P 500 Index declined 17.2%, indicating unfavorable equity markets. Moreover, fixed-income markets saw a notable negative performance as fixed-income asset yields increased and prices fell. The Bloomberg U.S. Aggregate Bond Index recorded a decline of 4.7% in the quarter.

Heightening concerns over inflation due to disrupted supply chains, product and material shortages, and high demand (boosted by past fiscal and monetary stimulus activities) also weighed on investor sentiments. Continued geopolitical tensions and the resulting sanctions introduced threats to global economic growth.

Hence, Franklin is likely to have witnessed a decrease in AUM due to overall outflows in equities and fixed income in the to-be-reported quarter beside modest client activities.

Franklin has recorded net outflows every month in the fiscal third quarter of 2022 primarily due to unfavorable markets. The preliminary month-end AUM of $1,379.8 billion as of Jun 30, 2022, compares unfavorably with $1,477.5 billion as of Mar 31, 2022.

Such challenges in AUM are likely to have hurt investment management fees and adversely affected Franklin’s financials. The consensus estimate for investment advisory fees of $1.53 billion indicates a fall of 7.2% from the previous quarter’s reported figure.

Nonetheless, in April 2022, Franklin closed the acquisition of Lexington Partners L.P., which enhanced its alternative asset offerings by adding more than $200 billion in aggregate alternative AUM. This is expected to have led to an increase in the company’s investment management fees in the to-be-reported quarter.

The consensus estimate for sales and distribution fees of $361 million indicates a fall of 2.4% from the previous quarter’s reported figure.

On the cost front, the company’s initiatives to leverage ongoing technological advancements are likely to have led to cost upsurges. Franklin Resources is expected to have incurred higher employee expenses due to rising salaries on account of inflation and Lexington acquisition-related costs. These are expected to have affected bottom-line growth in the quarter under review.

Earnings Whispers

The proven Zacks model does not predict an earnings beat for Franklin this time around. This is because Franklin does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing 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:  Franklin has an Earnings ESP of -2.38%.

Zacks Rank: Franklin currently carries a Zacks Rank of 4 (Sell).

Stocks That Warrant a Look

A couple of finance stocks, which you may want to consider as these have the right combination of elements to post an earnings beat in their upcoming releases, per our model, are Lazard Ltd LAZ and First Interstate BancSystem FIBK.

The Earnings ESP for Lazard is +2.04% and it carries a Zacks Rank #3 at present. LAZ is slated to report second-quarter 2022 results on Jul 28.

First Interstate BancSystem is scheduled to release quarterly results on Jul 26. FIBK currently sports a Zacks Rank #1 (Strong Buy) and has an Earnings ESP of +7.14%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Franklin Resources, Inc. (BEN) : Free Stock Analysis Report
Lazard Ltd (LAZ) : Free Stock Analysis Report
First Interstate BancSystem, Inc. (FIBK) : Free Stock Analysis Report
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