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Can Franklin (BEN) Retain Its Beat Streak in Q4 Earnings?

Franklin Resources Inc. BEN is scheduled to report fourth-quarter and fiscal 2022 results on Nov 1, before market open. 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. While lower expenses alleviated the bottom-line pressure to some extent, Franklin’s results displayed a top-line weakness, underlining substantial drawdowns in both equities and fixed-income markets.

Franklin’s earnings beat estimates in the trailing four quarters, the average surprise being 25.8%.

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 69 cents per share for the fiscal fourth quarter has moved down 8% in the past 30 days. Also, the figure suggests a decline of 45.2% from the prior-year quarter's reported number. The consensus estimate for revenues is pegged at $1.89 billion, suggesting a decline of 13.8% from the prior quarter’s reported number. Our estimate for the same is $1.92 billion.

The Zacks Consensus Estimate for fiscal 2022 revenues is pinned at $8.22 billion, indicating a year-over-year decline of 2.4%, while the same for earnings is pegged at $3.53, implying a 5.6% fall.

Key Q4 Estimates & Factors to Note

In the July-September quarter, the S&P 500 Index declined 5% sequentially, indicating unfavorable equity markets. Fixed-income markets, too, saw notable negative performances, with the Barclays U.S. Aggregate Bond Index recording a decline of 4%.

Hence, the September-end quarter’s performances of asset managers are expected to have been affected by transitory challenges in the industry like declining markets, the shift away from growth and uninspiring performances in certain U.S. equity strategies. Also, the swift decline in global markets, which depressed net flows across the industry in the first half of 2022, is expected to have continued in the quarter under review.

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.

Franklin has recorded net outflows every month in the fourth quarter of fiscal 2022 primarily due to unfavorable markets. The preliminary month-end AUM of $1,297.4 billion as of Sep 30, 2022, indicates a decline of 6% from $1,379.8 billion as of Jun 30, 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 $1.51 billion indicates a fall of 7.4% from the previous quarter’s reported figure. Our projection for the same is $1.52 billion.

The consensus estimate for sales and distribution fees of $331 million indicates a fall of 1.5% from the previous quarter’s reported figure. Our projection for the same is $339.9 million.

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. These are expected to have affected bottom-line growth in the quarter under review.

The company expects fourth-quarter fiscal 2022 general, administrative and other expenses of $140 million. Occupancy expenses are projected to be $57 million. Information systems and technology expenses are anticipated to be $125 million.

Earnings Whispers

Our proven model does not conclusively 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 0.00.

Zacks Rank: Franklin currently carries a Zacks Rank of 3.

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 Focus Financial Partners FOCS and UWM Holdings Corporation UWMC.

The Earnings ESP for Focus Financialis +0.33% and it carries a Zacks Rank #3 at present. FOCS is slated to report third-quarter 2022 results on Nov 3.

UWM Holdingsis scheduled to release quarterly results on Nov 4. UWMC currently has a Zacks Rank #2 (Buy) and an Earnings ESP of +66.67%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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

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Franklin Resources, Inc. (BEN) : Free Stock Analysis Report
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UWM Holdings Corporation (UWMC) : Free Stock Analysis Report
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