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Why Is Franklin Resources (BEN) Down 14% Since Last Earnings Report?

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A month has gone by since the last earnings report for Franklin Resources (BEN - Free Report) . Shares have lost about 14% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Franklin Resources due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Franklin's Q4 Earnings Beat Estimates, AUM Rises Y/Y

Franklin reported fourth-quarter fiscal 2021 (ended Sep 30) adjusted earnings of $1.26 per share, which surpassed the Zacks Consensus Estimate of 86 cents. Results also compare favorably with the earnings of 56 cents per share recorded in the prior-year quarter.

The company’s results display revenue growth with support from a solid rise in investment management fees during the quarter. Also, higher AUM was a positive. However, rise in expenses and net outflows were the undermining factors.

The adjusted operating income came in at $647.1 million in the reported quarter compared with the prior-year quarter’s $428.9 million.

For fiscal 2021, earnings per share were $3.57 compared with the $1.59 recorded in the prior year. Results include certain one-time items.

Including certain notable items, net income was $665.7 million or $1.30 per share, substantially up from $78.9 million or 15 cents per share in the prior-year quarter. For fiscal 2021, net income was $1.8 billion compared with the prior year’s $798.9 million.

Quarterly Revenues Increase, Costs Rise

For fiscal 2021, total operating revenues surged 51% year over year to $8.4 billion. The revenue figure also beat the Zacks Consensus Estimate of $8.33 billion.

Total operating revenues increased 28% year over year to $2.18 billion in the fiscal fourth quarter on higher investment management, sales and distribution and other fees. The figure surpassed the Zacks Consensus Estimate of $2.12 billion.

Investment management fees climbed 33% year over year to $1.7 billion, while other revenues increased 48% to $11.8 million. Additionally, sales and distribution fees were up 11% year over year to $408.1 million. Shareholder servicing fees increased 22% to $55.6 million.

Total operating expenses flared up 3% year over year to $1.6 billion. This upside resulted from rise in all components of expenses, including compensation and benefits, general, administrative, amortization of intangible assets and other along with sales, distribution and marketing expenses.

As of Sep 30, 2021, total AUM came in at $1.53 trillion, up 8% from $1.42 trillion as of Sep 30, 2019. Notably, the company recorded net new outflows of $13.8 billion during the July-September quarter. Simple monthly average AUM of $1.55 trillion increased 26% year over year.

Improved Capital Position

As of Sep 30, 2021, cash and cash equivalents, along with investments, were $5.9 billion compared with $4.3 billion as of Sep 30, 2021. Furthermore, total stockholders' equity was $11.8 billion compared with $10.9 billion as of Sep 30, 2020.

Outlook

The company remains on track to realize $300 million of gross synergies in relation to the Legg Mason deal with 85% of run rate savings realized and 100% to be achieved by the end of the fiscal year 2022.

Normalized tax rate for fiscal 2022 is expected to be 23-24%.

For the first quarter of fiscal 2022, management expects revenues to be approximately flat and expenses to be down in the low-single digits on a year-over-year basis (excluding performance fees).

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 5.18% due to these changes.

VGM Scores

At this time, Franklin Resources has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Franklin Resources has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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