Impacted by a lower top line, Franklin Resources Inc. BEN recorded a negative earnings surprise of 24.4% in fiscal fourth-quarter 2015. The company reported earnings of 59 cents per share, significantly missing the Zacks Consensus Estimate of 78 cents. Moreover, results compared unfavorably with the prior-year quarter earnings of $1.02 per share.
Lower-than-expected results reflected a decline in revenues. Moreover, net outflows were a headwind. However, decreased expenses reflect prudent expense management.
For fiscal 2014, earnings per share were $3.29 versus $3.79 in the prior year. Moreover, earnings lagged the Zacks Consensus Estimate by 19 cents per share.
Net income was $358.2 million in the quarter compared with $640.6 million in the prior-year quarter. For fiscal 2015, net income was $2.04 billion compared with $2.38 billion in the prior year.
Performance in Detail
For fiscal 2015, total operating revenue declined 6% year over year to $7.95 billion. Moreover, revenues were slightly below the Zacks Consensus Estimate of $7.97 billion.
Total operating revenue decreased 13% year over year to $1.87 billion in the quarter, mainly due to lower investment management, sales and distribution and shareholder servicing fees. Moreover, revenues lagged the Zacks Consensus Estimate of $1.90 billion.
Investment management fees decreased 12% year over year to $1.26 billion, while sales and distribution fees declined 19% year over year to $510.6 million. Moreover, shareholder servicing fees descended 6% on a year-over-year basis to $64.4 million, while other net revenue climbed 44% year over year to $41.9 million.
Total operating expenses decreased 12% year over year to $1.16 billion. The fall resulted mainly from a decline in sales, distribution and marketing along with reduced general, administrative and other expenses.
As of Sep 30, 2015, total AUM was $770.9 billion, down from $898 billion as of Sep 30, 2014. Notably, the quarter recorded net new outflows of $28.6 billion, market depreciation of $61.2 billion and $4.6 billion decrease resulted from decline in foreign exchange revaluation. Simple monthly average AUM of $824.5 billion decreased 10% year over year.
Notably, AUM was down 14% during fiscal 2015, mainly resulting from $57.9 billion of market depreciation, $48.8 billion of net new outflows and $15.1 billion decline from foreign exchange revaluation.
Capital Position
As of Sep 30, 2015, cash and cash equivalents along with investments were $10.6 billion compared with $10 billion as of Sep 30, 2014. Moreover, total stockholders' equity was $12.5 billion, compared with $12.2 billion as of Sep 30, 2014.
During the reported quarter, Franklin repurchased 11.9 million shares of its common stock at a total cost of $500.3 million.
Our Viewpoint
Franklin posted a disappointing quarter. Though the company’s global footprint is an exceptionally favorable strategic point as its AUM is well diversified, regulatory restrictions and sluggish economic recovery could mar AUM growth further and increase costs. Moreover, lower revenues remain a concern.
Currently, Franklin carries a Zacks Rank #5 (Strong Sell).
Among other investment managers, Waddell & Reed Financial, Inc. WDR, Invesco Ltd. IVZ and Legg Mason Inc. LM are scheduled to release September quarter-end earnings results on Oct 27, Oct 29 and Oct 30, respectively.
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