Franklin (BEN) Q1 Earnings Impress, Tax Charge Recorded

Franklin Resources Inc. BEN recorded a positive earnings surprise of 17.3% in first-quarter fiscal 2018. Adjusted earnings of 88 cents per share beat the Zacks Consensus Estimate of 75 cents. Further, results compared favorably with the prior-year quarter figure of 77 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.

Including income tax charge of $1.1 billion or $1.94 per share associated with the tax reform, the company reported net loss of $583.3 million or $1.06 per share.

Higher Revenues Recorded, Costs Escalate

Total operating revenues increased 4% year over year, to $1.62 billion in the quarter, mainly due to higher investment management and other fees, partly offset by lower sales and distribution fees, and shareholder servicing fees. However, revenues came in line with the Zacks Consensus Estimate.

Investment management fees climbed 5% year over year to $1.11 billion, while sales and distribution fees were down slightly year over year to $417.8 million. In addition, shareholder servicing fees descended 3%, on a year-over-year basis, to $54.9 million, while other net revenues escalated 35% year over year to $29.2 million.

Total operating expenses flared up 6% year over year to $1.03 billion. The increase resulted from rise in almost all components of expenses.

As of Dec 31, 2017, total AUM came in at $753.8 billion, up 5% from $720 billion as of Dec 31, 2016. Notably, the quarter recorded net new outflows of $2.3 billion. Simple monthly average AUM of $752.7 billion advanced 4% on a year-over-year basis.

Stable Capital Position

As of Dec 31, 2017, cash and cash equivalents, along with investments were $10.1 billion, compared with $9.9 billion as of Sep 30, 2017. Furthermore, total stockholders' equity was $12.1 billion compared with $12.9 billion as of Sep 30, 2017.

During the reported quarter, the company repurchased 4.6 million shares of its common stock at a total cost of $200 million.

Our Viewpoint

Franklin posted an encouraging 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 might impede its AUM growth and escalate costs.
 

Price, Consensus and EPS Surprise

 

Price, Consensus and EPS Surprise | 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

Federated Investors, Inc. FII posted a positive earnings surprise of around 3.4% for fourth-quarter 2017, keeping the earnings surprise streak alive of earnings beat. Adjusted earnings per share of 61 cents beat the Zacks Consensus Estimate by 2 cents and also improved 17%, year over year, from 52 cents. Including tax benefits, net income for the quarter came in at $131.8 million or $1.31 per share. Results were chiefly backed by lower expenses, driven by reduced voluntary fee waivers. Also, AUM improved during the quarter. Nevertheless, lower revenues were the undermining factor.

Legg Mason Inc. LM reported third-quarter fiscal 2018 (ended Dec 31) reported adjusted net income of $1.02 per share, significantly up 59.4% year over year. Results exclude tax benefit of $213.7 million, or $2.27 per share, and certain one-time items. The Zacks Consensus Estimate was 84 cents. Top-line strength and steady AUM were the tailwinds. Nevertheless, rise in expenses remained a major drag.

Ameriprise Financial Inc.’s AMP fourth-quarter 2017 adjusted operating earnings per share of $3.26 comfortably surpassed the Zacks Consensus Estimate of $3.09. Also, the figure compares favorably with $2.73 per share registered in the year-ago quarter. Results benefited from an improvement in revenues. Also, growth in AUM and assets under administration (AUA) were on the positive side. However, a rise in expenses acted as a headwind.

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