It has been about a month since the last earnings report for Franklin Resources (BEN). Shares have lost about 6.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Franklin Resources due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Franklin's Q2 Earnings Beat Estimates, Revenues Down
Franklin reported a positive earnings surprise of 12.5% in second-quarter fiscal 2019 (ended Mar 31). Earnings of 72 cents per share outpaced the Zacks Consensus Estimate of 64 cents. Results, however, compare unfavorably with earnings of 78 cents per share recorded in the prior-year quarter.
The company witnessed controlled expenses in the quarter. However, lower revenues and reduced AUM were recorded. Further, net outflows were also an undermining factor.
Operating income was $379.5 million in the reported quarter compared with $555.7 million witnessed in the prior-year quarter.
Lower Revenues Recorded, Costs Down
Total operating revenues decreased 11% year over year to $1.43 billion in the first quarter, mainly due to lower investment management and other fees, sales and distribution fees, shareholder servicing fees and other revenues. Yet, the figure beat the Zacks Consensus Estimate of $1.41 billion.
Investment management fees declined 11% year over year to $992.4 million, while sales and distribution fees were down 13% year over year to $358.5 million. Additionally, shareholder-servicing fees descended 7% on a year-over-year basis to $57.1 million, while other net revenues slipped 13% year over year to $25.8 million.
Total operating expenses dropped 1% year over year to $1.05 billion. The downside resulted from lower sales, distribution and marketing, along with occupancy expenses. This was partly offset by rise in compensation and benefits as well as technology expenses.
As of Mar 31, 2019, total AUM came in at $712.3 billion, down 3% from $737.5 billion as of Mar 31, 2018. Notably, the quarter recorded net new outflows of $6.3 billion. Simple monthly average AUM of $688.6 billion slipped 8% on a year-over-year basis.
Stable Capital Position
As of Mar 31, 2019, cash and cash equivalents, along with investments were $7.2 billion, compared with $8 billion as of Sep 30, 2018. Furthermore, total stockholders' equity was $10.5 billion compared with $10.2 billion as of Sep 30, 2018.
During the March-end quarter, the company repurchased 4.6 million shares of its common stock at a total cost of $144.7 million.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
Currently, Franklin Resources has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Franklin Resources has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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