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Franklin's (BEN) Q1 Earnings Top Estimates, AUM Increases

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Zacks Equity Research
·5 min read
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Franklin Resources Inc. BEN reported first-quarter fiscal 2021 (ended Dec 31) adjusted earnings of 73 cents per share, inching past the Zacks Consensus Estimate of 72 cents. Results also compare favorably with the earnings of 67 cents per share recorded in the prior-year quarter.

The company’s results display top-line strength during the quarter. Also, a solid capital position and higher assets under management (AUM) were positives. However, higher expenses were a major drag. Additionally, net outflows were an undermining factor.

Adjusted operating income came in at $549.9 million in the reported quarter compared with the prior-year quarter’s $405.5 million.

Including certain notable items, net income was $345.3 million or 67 cents per share compared with the $350.5 million or 70 cents per share recorded in the prior-year quarter.

Revenues Climb, Partly Offset by High Costs

Total operating revenues jumped 44% year over year to $2 billion in the fiscal first quarter on higher investment management, sales and distribution and other fees, partly negated by lower shareholder-servicing fees.

Investment management fees surged 57% year on year to $1.54 billion, while other net revenues increased 5% to $8.4 million. Moreover, sales and distribution fees were up 13% year over year to $396.9 million. Yet, shareholder-servicing fees dipped 1% on a year-over-year basis to $49.4 million.

Total operating expenses flared up 56% year over year to $1.59 billion. This upsurge resulted from rise in all components of expenses, including compensation and benefits, information systems and technology, general, administrative and other along with sales, distribution and marketing expenses.

As of Dec 31, 2020, total AUM came in at $1.5 trillion, up 6% from $1.4 trillion as of Sep 30, 2020 and up 115% from $698.3 billion as of Dec 31, 2019. Notably, the company recorded net new outflows of $4.5 billion during the October-December period. Simple monthly average AUM of $1.4 trillion increased 18% sequentially and more than doubled on a year-over-year basis.

Stable Capital Position

As of Dec 31, 2020, cash and cash equivalents, along with investments, were $5.3 billion compared with $4.3 billion as of Sep 30, 2020. Furthermore, total stockholders' equity was $11.4 billion compared with $11 billion as of Sep 30, 2020.

During the reported quarter, the company repurchased 2.1 million shares for a total cost of $45.6 million.

Our Viewpoint

The company’s global footprint is an exceptionally favorable strategic point as its AUM is well diversified. Though rise in investment-management fees on favorable foreign-exchange movements and strategic moves will likely support AUM growth, rise in expenses might restrict bottom-line expansion.

The acquisition of Legg Mason has created a robust separately-managed account business, grabbing market opportunities and scaling 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 and EPS Surprise

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

Currently, Franklin carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Investment Managers

Invesco IVZ reported fourth-quarter 2020 adjusted earnings of 72 cents per share, surpassing the Zacks Consensus Estimate of 57 cents. Also, the bottom line grew 12.5% from the prior-year quarter. Results reflected lower operating expenses and solid liquidity position. Also, AUM balance improved. Nonetheless, decline in revenues was an undermining factor.

BlackRock, Inc.’s BLK adjusted earnings of $10.18 per share outpaced the Zacks Consensus Estimate of $8.84 for the December-end quarter. The figure underlined a rise of 22.1% from the year-ago quarter’s number. The company benefited from an improvement in revenues, partly offset by higher expenses during the reported quarter. Further, long-term net inflows resulted in a rise in AUM balance, which was a major positive.

Cohen & Steers’ CNS fourth-quarter adjusted earnings of 76 cents per share beat the Zacks Consensus Estimate of 67 cents. Moreover, the bottom line was 2.7% higher than the year-ago reported figure. The bank primarily benefited from an improvement in revenues, partially offset by higher expenses. Additionally, the company recorded a rise in AUM balance on net inflows and market appreciation.

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