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Why Is Franklin Resources (BEN) Down 0.9% Since Last Earnings Report?

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A month has gone by since the last earnings report for Franklin Resources (BEN). Shares have lost about 0.9% in that time frame, outperforming 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 Q2 Earnings Top Estimates, Revenues Rise Y/Y

Franklin reported second-quarter fiscal 2022 (ended Mar 31) adjusted earnings of 96 cents per share, which beat the Zacks Consensus Estimate of 79 cents. The bottom line also improved 22% from the prior-year quarter.

Franklin’s results display top-line strength in the quarter. Also, lower expenses were positives. However, a decline in AUM was a major drag.

Adjusted operating income was $576.6 million in the reported quarter compared with the prior-year quarter’s $581.1 million.

Net income was $349.6 million, down 8% year over year.

Revenues Rise, Costs Dip

Total operating revenues rose marginally year over year to $2.08 billion in the fiscal second quarter on higher investment management fees. The reported figure also outpaced the Zacks Consensus Estimate of $2.03 billion.

Investment management fees climbed 3% year over year to $1.65 billion, while other revenues jumped 7% to $9.4 million. Sales and distribution fees were 10% down to $370.2 million. Shareholder-servicing fees declined 6% on a year-over-year basis to $52.2 million.

Total operating expenses were marginally down year over year to $1.61 billion.
Franklin has reported an adjusted operating margin of 35.7% compared with 38% in the year-ago quarter.

AUM Declines

As of Mar 31, 2022, the total AUM was $1.47 trillion, down 6% from $1.57 trillion as of Dec 31, 2021. Franklin recorded net new outflows of $11.7 billion in the reported quarter.

Average AUM was recorded at $1.51 trillion, down 2% sequentially.

Balance Sheet Position Mixed

As of Mar 31, 2022, cash and cash equivalents along with investments were $5.8 billion compared with $5.9 billion as of Sep 30, 2021. Nonetheless, total stockholders' equity was $12.2 billion compared with $11.8 billion as of Sep 30, 2021.

In the reported quarter, Franklin repurchased 2.7 million shares for $80.8 million.

Outlook

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

For fiscal 2022, management anticipates adjusted operating expenses of $3.9-$3.95 billion (excluding performance fees and including Lexington acquisition-related costs).

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

VGM Scores

Currently, Franklin Resources has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Franklin Resources has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Franklin Resources is part of the Zacks Financial - Investment Management industry. Over the past month, Artisan Partners Asset Management (APAM), a stock from the same industry, has gained 7.5%. The company reported its results for the quarter ended March 2022 more than a month ago.

Artisan Partners reported revenues of $281.6 million in the last reported quarter, representing a year-over-year change of -3.1%. EPS of $0.98 for the same period compares with $1.13 a year ago.

Artisan Partners is expected to post earnings of $0.90 per share for the current quarter, representing a year-over-year change of -29.7%. Over the last 30 days, the Zacks Consensus Estimate has changed -3.2%.

Artisan Partners has a Zacks Rank #4 (Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.


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