Driven by strong revenues, Franklin Resources Inc.’s (BEN) fiscal fourth-quarter 2014 earnings of $1.02 per share significantly beat the Zacks Consensus Estimate of 92 cents. Moreover, results compared favorably with the prior-year quarter earnings of 80 cents per share.
Top-line growth, increased assets under management (AUM) and a strong capital position were tailwinds for the quarter. However, increased expenses and net outflows remained a concern.
For fiscal 2014, earnings per share were $3.79 versus $3.37 in the prior year. Moreover, earnings outpaced the Zacks Consensus Estimate by 10 cents per share.
Net income was $640.6 million in the quarter compared with $509 million in the prior-year quarter. For fiscal 2014, net income was $2.38 billion compared with $2.15 billion in the prior year.
Performance in Detail
For fiscal 2014, total operating revenue climbed 6% year over year to $8.49 billion. However, revenues were slightly below the Zacks Consensus Estimate of $8.50 billion.
Total operating revenue increased 9% year over year to $2.16 billion in the quarter, mainly due to growth in investment management fees. However, revenues lagged the Zacks Consensus Estimate of $2.17 billion.
Investment management fees increased 11% year over year to $1.43 billion, while sales and distribution fees rose 4% year over year to $627.4 million. Moreover, other net revenue escalated 52% year over year to $29.1 million, while shareholder servicing fees descended 9% on a year-over-year basis to $68.3 million.
Total operating expenses increased 6% year over year to $1.32 billion. The upsurge resulted from a rise in all categories of expenses.
As of Sep 30, 2014, total AUM was $898 billion, up from $844.7 billion as of Sep 30, 2013, driven by market appreciation and other of $62.4 billion, including net decline of $6.8 billion, reflecting the impact of foreign exchange revaluation. This was partially offset by $4.6 billion of net new outflows.
Simple monthly average AUM of $887.9 billion during the year climbed 10% year over year. Notably, net new outflows of $0.1 billion were recorded in the quarter.
Capital Position
As of Sep 30, 2014, cash and cash equivalents along with investments were $10 billion compared with $8.6 billion as of Sep 30, 2013. Moreover, total stockholders' equity was $12.2 billion versus $10.7 billion as of Sep 30, 2013.
During the reported quarter, Franklin repurchased 3.2 million shares of its common stock at a total cost of $177.8 million.
Our Viewpoint
Franklin's global footprint is an exceptionally favorable strategic point as its AUM is well diversified. Though regulatory restrictions and sluggish economic recovery could mar AUM growth and increase costs, the company is poised to benefit from its strong balance sheet.
Currently, Franklin carries a Zacks Rank #3 (Hold).
Competitive Landscape
Janus Capital Group Inc. (JNS) reported third-quarter 2014 earnings per share attributable to common shareholders of 22 cents, in line with the Zacks Consensus Estimate. However, results compared favorably with the prior-year quarter adjusted earnings of 17 cents. Results reflected top-line growth and increased AUM, depicting stability in earnings. However, net outflows, market depreciation and a rise in operating expenses were headwinds for the quarter.
On the back of strong M&A (mergers and acquisitions) advisory activity, Lazard Ltd. (LAZ) beat estimates for the sixth straight quarter. Adjusted earnings of 67 cents per share in third-quarter 2014 outpaced the Zacks Consensus Estimate of 65 cents. Also, the reported figure compared favorably with 46 cents earned in the prior-year quarter. Results were driven by strong top-line performance, partially offset by elevated expenses.
Among other investment managers, Legg Mason Inc. (LM) is scheduled to report September quarter-end results on Oct 31.
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