Franklin Resources, Inc. BEN is scheduled to report its fiscal fourth-quarter 2015 results before the opening bell on Thursday, Oct 22.
Last quarter, this asset manager delivered a 5.75% negative earnings surprise impacted by poor top-line performance. Moreover, net outflows were a headwind.
Moreover, Franklin has missed estimates in two of the trailing four quarters. Will it be able to turn the tables this quarter? Let's see what factors might have influenced the earnings report this time around.
Factors to Impact Q4 Results
Amid investors’ worries related to the China turmoil and expected rise in interest rates, the September quarter was the worst in more than four years for the large-cap S&P 500 Index. Moreover, there was increasing volatility and price declines across global equity markets. Therefore, taking market performance into consideration, overall asset under management (“AUM”) is expected to trend down or remain stable for Franklin.
Further, the quarter witnessed a considerable fall in assets under management. Moreover, based on data released by the company, total AUM was down 14.2% year over year as of Sep 30, 2015. Lower AUM can substantially deter revenue growth.
The company’s inability to reduce expenses is also a major concern. The past few years witnessed rising expenses. Though the trend reversed during the first nine months of fiscal 2015, management anticipates elevated compensation costs to drive expenses higher. Moreover, as a result of potential changes in strategic marketing campaigns, the level of advertising and promotion expenditures might increase more rapidly than revenues, thereby affecting bottom-line growth.
Moreover, Franklin is subject to numerous regulations by U.S. and non-U.S. regulators that add further complexity to ongoing global compliance operations and can thereby hurt profitability.
Activities of Franklin during the quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter remained stable at 78 cents per share over the last 7 days.
Earnings Whispers
Our proven model shows that Franklin is likely to miss the Zacks Consensus Estimate in the fiscal fourth quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least #2 (Buy) or #3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: The earnings ESP for Franklin is -2.56%. This is because the Most Accurate estimate of 76 cents is below the Zacks Consensus Estimate of 78 cents.
Zacks Rank: Franklin’s Zacks Rank #5 (Strong Sell) further decreases the predictive power of ESP.
Stocks That Warrant a Look
Here are some stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
The earnings ESP for Capital One Financial Corporation COF is +2.08% and it carries a Zacks Rank #3. The company is scheduled to release third-quarter results on Oct 22.
Ally Financial Inc. ALLY has an earnings ESP of +1.92% and carries a Zacks Rank #2. It is expected to report third-quarter results on Oct 29.
The earnings ESP for UMB Financial Corporation UMBF is +1.49% and it carries a Zacks Rank #3. The company is expected to release third-quarter results on Oct 27.
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