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Franklin (BEN) Q4 Earnings Beat Estimates, Costs Flare Up

Franklin Resources Inc. BEN recorded a positive earnings surprise of 5.6% in fourth-quarter fiscal 2017. Earnings of 76 cents per share beat the Zacks Consensus Estimate of 72 cents. However, results compared unfavorably with the prior-year quarter earnings of 82 cents per share.

Top-line strength and growth in assets under management (AUM) were recorded. Nevertheless, elevated operating expenses were a headwind. Net outflows were also an undermining factor.

For fiscal 2017, earnings per share were $3.01 versus $2.94 recorded in the prior year. Moreover, earnings outpaced the Zacks Consensus Estimate of $2.97 by 4 cents per share.

Net income was $425.2 million in the quarter compared with $472.1 million witnessed in the prior-year quarter. For fiscal 2017, net income was $1.7 billion compared with $1.73 billion in the prior year.

Higher Revenues Recorded, Costs Escalate

For fiscal 2017, total operating revenues dropped 3% year over year to $6.39 billion. Further, revenues lagged the Zacks Consensus Estimate of $6.41 billion.

Total operating revenues increased slightly year over year, to $1.62 billion in the quarter, mainly due to higher investment management and other fees, mostly offset by lower sales and distribution fees and shareholder servicing fees. Yet, revenues lagged the Zacks Consensus Estimate of $1.64 billion.

Investment management fees inched up 1% year over year to $1.11 billion, while sales and distribution fees were down 4% year over year to $421.8 million. In addition, shareholder servicing fees descended 4%, on a year-over-year basis, to $56 million, while other net revenues escalated 80% year over year to $29.3 million.

Total operating expenses flared up 3% year over year to $1.06 billion. The rise resulted mainly from elevated compensation and benefits, general, administrative, and information systems and technology expenses. These increases were partially offset by lower sales, distribution and marketing, along with occupancy expenses.

As of Sep 30, 2017, total AUM came in at $753.2 billion, up 3% from $733.3 billion as of Sep 30, 2016. Notably, the quarter recorded net new outflows of $5.9 billion. Simple monthly average AUM of $749 billion climbed 2% on a year-over-year basis.

Stable Capital Position

As of Sep 30, 2017, cash and cash equivalents, along with investments were $9.9 billion, compared with $10.7 billion as of Sep 30, 2016. Furthermore, total stockholders' equity was $12.9 billion compared with $12.5 billion as of Sep 30, 2016.

During fiscal 2017, Franklin repurchased 19.1 million shares of its common stock at a total cost of $771.5 million. Notably, during the reported quarter, the company repurchased 3.9 million shares of its common stock at a total cost of $168.4 million.

Our Viewpoint

Franklin posted an impressive quarter. Higher revenues were a tailwind. The company’s global footprint is an exceptionally favorable strategic point as its AUM is well diversified. However, regulatory restrictions and sluggish economic recovery might mar its AUM growth and escalate costs.
 

Franklin Resources, Inc. Price, Consensus and EPS Surprise

 

Franklin Resources, Inc. Price, Consensus and EPS Surprise | 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.

Competitive Landscape

Ameriprise Financial Inc.’s AMP third-quarter 2017 operating earnings per share of $3.53 comfortably surpassed the Zacks Consensus Estimate of $2.86. Also, the figure compares favorably with $1.37 per share registered in the year ago quarter. Results benefitted from a decline in expenses. Also, growth in AUM and assets under administration (AUA) were on the positive side. However, a slight decline in revenues acted as a headwind.

Waddell & Reed Financial Inc.’s WDR third-quarter 2017 earnings of 45 cents per share outpaced the Zacks Consensus Estimate of 40 cents. However, it compared unfavorably with the year-ago quarter’s earnings of 65 cents. Results were adversely impacted by lower revenues and a rise in expenses. Also, despite higher gross sales and a fall in net outflows during the quarter, AUM continued to decline. Nevertheless, a solid balance sheet position was a positive for the company.

BlackRock, Inc. BLK reported third-quarter 2017 adjusted earnings of $5.92 per share, which outpaced the Zacks Consensus Estimate of $5.59. Also, the bottom line came in 15% higher than the year-ago quarter. Results benefited from improvement in revenues, rise in AUM and steady long-term inflows. However, increase in operating expenses acted as a headwind.

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