Driven by prudent cost management, Franklin Resources, Inc. (BEN - Free Report) recorded a positive earnings surprise of 10.4% in second-quarter fiscal 2017. The company reported earnings of 74 cents per share, beating the Zacks Consensus Estimate of 67 cents. Moreover, results compared favorably with the prior-year quarter earnings of 61 cents per share.
Results were positively driven by a decline in expenses. However, net outflows and lower revenues were undermining factors.
Net income was $420.7 million in the quarter compared with $360.4 million in the prior-year quarter.
Lower Revenues Recorded, Costs Falls
Total operating revenue edged down 1%, year over year, to $1.60 billion in the quarter, mainly due to lower investment management, sales and distribution and shareholder servicing fees. Further, revenues lagged the Zacks Consensus Estimate of $1.57 billion.
Investment management fees dipped 1% year over year to $1.09 billion, while sales and distribution fees were down 1% year over year to $431.2 million. Moreover, shareholder servicing fees descended 9%, on a year-over-year basis, to $56.4 million, while other net revenue escalated 20% year over year to $23.8 million.
Total operating expenses decreased 3% year over year to $1.05 billion. The fall resulted mainly from reduced compensation and benefits, general, administrative, and other and occupancy expenses.
As of Mar 31, 2017, total AUM was $740.0 billion, down slightly from $742.6 billion as of Mar 31, 2016. Notably, the quarter recorded net new outflows of $11 billion. Simple monthly average AUM of $731.7 billion dropped 1% year over year.
Stable Capital Position
As of Mar 31, 2017, cash and cash equivalents, along with investments were $9.7 billion, compared with $10.7 billion as of Sep 30, 2016. Moreover, total stockholders’ equity was $12.5 billion, in line with the figure as of Sep 30, 2016.
During the reported quarter, Franklin repurchased 4 million shares of its common stock at a total cost of $166.8 million.
Our Viewpoint
Franklin posted an impressive quarter. The company’s global footprint is an exceptionally favorable strategic point as its AUM is well diversified. In addition, the company reflected prudent expense management. However, regulatory restrictions and sluggish economic recovery could mar AUM growth and escalate costs. Moreover, lower revenues remain a concern.
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