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Franklin's (BEN) Q4 Earnings Lag Estimates, AUM Rises Y/Y

Zacks Equity Research
·4 min read

Franklin Resources Inc. BEN reported fourth-quarter fiscal 2020 (ended Sep 30) adjusted earnings of 56 cents per share, which lagged the Zacks Consensus Estimate of 69 cents. Results also compare unfavorably with the earnings of 71 cents per share recorded in the prior-year quarter.

The company’s results display revenue growth with support from solid rise in investment management fees during the quarter. Also, higher assets under management (AUM) was a positive. However, rise in expenses and net outflows were the undermining factors.

Adjusted operating income came in at $428.9 million in the reported quarter compared with the prior-year quarter’s $406.8 million.

For fiscal 2020, earnings per share were $1.59 compared with $2.35 recorded in the prior year. Results include certain one-time items.

Including certain notable items, net income was $78.9 million or 15 cents per share compared with the $306.4 million or 61 cents per share in the prior-year quarter. For fiscal 2020, net income was $798.9 million compared with the prior year’s $1.2 billion.

Quarterly Revenues Increase, Costs Rise

For fiscal 2020, total operating revenues slipped 2% year over year to $5.57 billion. The revenue figure, however, outpaced the Zacks Consensus Estimate of $5.37 billion.

Total operating revenues increased 20% year over year to $1.71 billion in the fiscal fourth quarter due to higher investment management, sales and distribution and other fees. The figure surpassed the Zacks Consensus Estimate of $1.23 billion.

Investment management fees climbed 28% year over year to $1.28 billion, while other revenues increased 33% to $8 million. Additionally, sales and distribution fees were up 1% year over year to $366.7 million. However, shareholder servicing fees dipped 11% to $45.7 million.

Total operating expenses surged 51% year over year to $1.6 billion. This upside resulted from rise in all components of expenses, including compensation and benefits, general, administrative, amortization of intangible assets and other along with sales, distribution and marketing expenses.

As of Sep 30, 2020, total AUM came in at $1.42 trillion, up significantly from $692.6 billion as of Sep 30, 2019. Notably, the company recorded net new outflows of $12.6 billion during the July-September quarter. Simple monthly average AUM of $1.23 trillion increased 75% year over year.

Stable Capital Position

As of Sep 30, 2020, cash and cash equivalents, along with investments, were $4.3 billion compared with $7.4 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

Franklin’s global footprint is an exceptionally favorable strategic point as its AUM is well diversified. Also, the company’s strategic moves might lend some support to the bottom line. Further, increased volatility amid the coronavirus crisis supported growth in investment-management fees.

The acquisition of Legg Mason is likely to result in 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 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 Investment Managers

Affiliated Managers Group Inc.’s AMG third-quarter 2020 economic earnings of $3.27 per share surpassed the Zacks Consensus Estimate of $2.86. Also, the bottom line grew 3.5% year over year.

Cohen & Steers’CNS third-quarter 2020 adjusted earnings of 67 cents per share surpassed the Zacks Consensus Estimate of 60 cents. Moreover, the bottom line was 3.1% higher than the year-ago reported figure.

BlackRock, Inc.’s BLK third-quarter 2020 adjusted earnings of $9.22 per share surpassed the Zacks Consensus Estimate of $7.81. The figure reflects a rise of 29% from the year-ago quarter’s number.

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