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Franklin (BEN) Posts In-Line Earnings in Q3, Costs Flare Up

Franklin Resources Inc. BEN reported third-quarter fiscal 2017 earnings of 73 cents per share, in line with the Zacks Consensus Estimate. Moreover, results compared unfavorably with the prior-year quarter earnings of 77 cents per share.

Lower revenues and elevated operating expenses were recorded. Net outflows were also an undermining factor. However, growth in assets under management (AUM) was witnessed.

Net income was $410.6 million in the quarter compared with $446.4 million in the prior-year quarter.

Lower Revenues Recorded, Costs Escalate

Total operating revenue edged down 1%, year over year, to $1.61 billion in the quarter, mainly due to lower sales and distribution and shareholder servicing fees, along with other fees. Further, revenues lagged the Zacks Consensus Estimate of $1.63 billion.

Investment management fees inched up slightly year over year to $1.1 billion, while sales and distribution fees were down 4% year over year to $433.3 million. In addition, shareholder servicing fees descended 8%, on a year-over-year basis, to $56.7 million; while other net revenue declined 8% year over year to $26.9 million.

Total operating expenses were up 1% year over year to $1.05 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 Jun 30, 2017, total AUM came in at $742.8 billion, up 1% from $732.1 billion as of Jun 30, 2016. Notably, the quarter recorded net new outflows of $7.3 billion. Simple monthly average AUM of $742.1 billion increased slightly on a year-over-year basis.

Stable Capital Position

As of Jun 30, 2017, cash and cash equivalents, along with investments were $10.0 billion, compared with $10.7 billion as of Sep 30, 2016. Furthermore, total stockholders' equity was $12.7 billion compared with $12.5 billion as of Sep 30, 2016.

During the reported quarter, Franklin repurchased 4.1 million shares of its common stock at a total cost of $174.6 million.

Our Viewpoint

Franklin posted a decent quarter. The company’s global footprint is an exceptionally favorable strategic point as its AUM is well diversified. However, regulatory restrictions and sluggish economic recovery could mar AUM growth and escalate costs. Additionally, lower revenues remain a concern.

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 #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Competitive Landscape

T. Rowe Price Group, Inc. TROW reported positive earnings surprise of 0.8% for   second-quarter 2017. Adjusted earnings per share of $1.28 outpaced the Zacks Consensus Estimate by a penny. Further, the bottom line improved 15.3% from the year-ago figure of $1.11.

Ameriprise Financial Inc.’s AMP second-quarter 2017 operating earnings per share of $2.80 comfortably surpassed the Zacks Consensus Estimate of $2.62. Also, the figure represents a year-over-year increase of 26%.

The Blackstone Group L.P. BX reported second-quarter 2017 economic net income (ENI) of 59 cents per share, which lagged the Zacks Consensus Estimate of 62 cents. An increase in expenses was the primary reason for the lower-than-expected results. However, the quarter witnessed a rise in revenues.

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