Franklin Resources Inc.‘s (BEN) third-quarter earnings of $1.58 per share surpassed the Zacks Consensus Estimate of $1.48. Results were also significantly ahead of the prior-year’s earnings of $1.28 per share.
Results reflected inflow of cash coupled with strong growth in revenue and higher assets under management (AUM), partially offset by increased operating expenses.
Quarter Performance in Detail
Total operating revenue increased 43.0% year over year to $1,534.0 billion, primarily driven by higher investment management fees, increased underwriting and distribution fees and increased shareholder servicing fees. Revenue also outpaced the Zacks Consensus Estimate of $1,460.0 million.
Revenue from investment management fees increased 47% year over year to $915.9 million, while revenue from underwriting and distribution fees grew 45% year over year to $529.3 million.
Total operating expenses increased 35.0% year over year to $1.0 billion, mainly due to an increase in underwriting and distribution expenses, advertising and promotion expenses and higher compensation and benefits. Operating margin improved 400 basis points year over year to 34.0%.
Total AUM increased to $570.5 billion from $451.2 billion last year due to higher inflows. Simple monthly average AUM during the quarter increased 36.2% year over year to $583.1 billion.
Cash and cash equivalents and investments were $6.6 billion, compared with $5.8 billion as of September 30, 2009. Total net flow increased to $18.8 billion from $6.0 billion in the prior-year quarter.
During the third quarter of 2010, Franklin repurchased 2.1 million shares of its common stock for a total cost of $212.3 million and had a net increase in debt outstanding of $828.7 million.
As of June 30, 2010, Franklin’s closest peer, BlackRock Inc. (BLK) reported substantially higher AUM of $3.2 trillion on year-over-year basis.
Franklin’s global footprint is basically an exceptionally favorable strategic point, since its AUM is well diversified. Coupled with a strong balance sheet, this is expected to cushion the company. Earnings for 2H10 are anticipated to improve as the environment for assets managers is gradually recovering with new demand led by recuperating markets.
Franklin currently retains its Zacks #4 Rank, which translates to a short-term Sell rating. However, considering the fundamentals, we are maintaining a longer-term Neutral recommendation on the stock.
FRANKLIN RESOUR (BEN): Free Stock Analysis Report
BLACKROCK INC (BLK): Free Stock Analysis Report
Zacks Investment Research
