Franklin's (BEN) Q2 Earnings Beat Estimates on Higher AUM

Franklin Resources Inc. BEN reported second-quarter fiscal 2021 (ended Mar 31) adjusted earnings of 79 cents per share, which topped the Zacks Consensus Estimate of 74 cents. The bottom line also compared favorably with the earnings of 66 cents per share recorded in the prior-year quarter.

The company’s results display top-line strength during the quarter. Also, a solid capital position and higher assets under management (AUM) were positives. However, higher expenses were a major drag. Additionally, net outflows were an undermining factor.

Adjusted operating income came in at $581.1 million in the reported quarter compared with the prior-year quarter’s $385.9 million.

Including certain notable items, net income was $381.8 million or 74 cents per share compared with $79.1 million or 16 cents per share recorded in the prior-year quarter.

Higher Revenues Partly Offset by Elevated Costs

Total operating revenues jumped 85% year over year to $2.08 billion in the fiscal second quarter on higher investment management, sales and distribution, other and shareholder-servicing fees.

Investment management fees surged 76% year over year to $1.6 billion, while other revenues increased 35% to $8.8 million. Moreover, sales and distribution fees were up 21% to $413.6 million. Also, shareholder-servicing fees climbed 2% on a year-over-year basis to $55.7 million.

Total operating expenses flared up 67% year over year to $1.62 billion. This upsurge resulted from rise in all components of expenses, including compensation and benefits, information systems and technology, general, administrative and other along with sales, distribution and marketing expenses.

The company reported operating margin of 22% compared with 25.9% in the year-ago quarter.

Higher AUM

As of Mar 31, 2021, total AUM came in at $1.5 trillion, up slightly from previous month and up 158% from $580.3 billion as of Mar 31, 2020. Notably, the company recorded net new outflows of $4.2 billion during the January-March period.

Simple monthly average AUM of $1.49 trillion increased 4% sequentially and 128% on a year-over-year basis.

Stable Capital Position

As of Mar 31, 2021, cash and cash equivalents, along with investments, were $5.2 billion compared with $4.3 billion as of Sep 30, 2020. Furthermore, total stockholders' equity was $11.7 billion compared with $11 billion as of Sep 30, 2020.

During the reported quarter, the company repurchased 1.7 million shares for a total cost of $45.8 million.

Our Viewpoint

The company’s global footprint is an exceptionally favorable strategic point as its AUM is well diversified. Though rise in investment-management fees on favorable foreign-exchange movements and strategic moves will likely support AUM growth, rise in expenses might restrict bottom-line expansion.

The acquisition of Legg Mason has created a robust separately-managed account business, which has expanded its market presence and client base, striking a balance between institutional and retail client AUM.

Franklin Resources, Inc. Price and EPS Surprise

Franklin Resources, Inc. Price and EPS Surprise

Franklin Resources, Inc. price-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.

Performance of Other Investment Managers

Lazard Ltd LAZ reported first-quarter 2021 adjusted earnings of 87 cents per share, beating the Zacks Consensus Estimate of 85 cents. The reported figure also comes in higher than the prior-year quarter reported figure of 58 cents.

Affiliated Managers Group Inc.’s AMG first-quarter 2021 economic earnings of $4.28 per share surpassed the Zacks Consensus Estimate of $4.26. Also, the bottom line grew 34.5% year over year.

Federated Hermes FHI reported first-quarter 2021 earnings per share of 75 cents, lagging the Zacks Consensus Estimate of 77 cents. The figure, however, compared favorably with the prior-year quarter earnings of 63 cents.

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