Can Franklin (BEN) Retain Its Beat Streak in Q2 Earnings?

Zacks Equity Research

April 23, 2024 at 12:49 p.m.·4 min read

Franklin Resources Inc. BEN is scheduled to report second-quarter fiscal 2024 results (ended Mar 31) on Apr 29, before market open. While BEN’s quarterly earnings are anticipated to have declined from the year-ago reported level, revenues are expected to have risen.

In the last reported quarter, Franklin’s earnings surpassed the Zacks Consensus Estimate on a stronger top line than the prior-year quarter. An increase in assets under management (AUM) was a positive. However, rising expenses affected the bottom line to some extent.

Franklin’s earnings beat the consensus estimate in the trailing four quarters, the average surprise being 16.5%.

Franklin Resources, Inc. Price and EPS Surprise

Franklin Resources, Inc. price-eps-surprise | Franklin Resources, Inc. Quote

BEN’s activities in the to-be-reported quarter were inadequate to win analysts’ confidence. The Zacks Consensus Estimate for earnings of 57 cents per share for the second quarter of fiscal 2024 has moved marginally down over the past week. Also, the figure suggests a decline of 6.6% from the prior-year quarter’s actual.

The consensus estimate for revenues is pegged at $2.07 billion, indicating a year-over-year decline of 7.5%.

Key Development During the Quarter

Franklin completed the acquisition of Putnam Investments, a global asset management firm, from Great-West Lifeco on Jan 1, 2024. Putnam had $142 billion (excluding PanAgora) in AUM as of November 2023, which is now included in Franklin’s AUM.

Factors at Play

Last year’s stock market rally continued in the January-March quarter, with the S&P 500 Index rising 10.2%, indicating a favorable equity-market performance. However, fixed-income markets could not catch up with the equity markets. The Bloomberg U.S. Aggregate Bond Index declined in the quarter. Hence, the march-end quarter’s performances of asset managers are expected to have been positively impacted by solid equity market returns, partially offset by weak fixed-income markets.

Per the monthly metrics data published by Franklin, its preliminary total AUM as of Mar 31, 2024, was $1.64 trillion, increasing 13% from Dec 31, 2023. Driven by the improvement in the AUM balance, the company’s investment management fee is expected to have risen. However, the Zacks Consensus Estimate for investment management fee is pegged at $1.62 billion, indicating a decline of 1.4% on a sequential basis. Our estimate for the same is pegged at $1.65 billion.

The consensus estimate for sales and distribution fees of $313 million indicates a 5.7% rise from the prior quarter’s reported figure. We estimate the metric to be $308.1 million.

The consensus estimate for shareholder servicing fees of $45.7 million implies a 40.6% sequential rise. The Zacks Consensus Estimate for other revenues is pegged at $16.5 million, suggesting a sequential increase of 65%. Our estimate for shareholder servicing fees and other revenues is pegged at $38.8 million and $10.3 million, respectively.

On the cost front, its initiatives to leverage ongoing technological advancements are likely to have led to cost upsurges. Franklin is also expected to have incurred higher employee expenses due to rising salaries on account of inflation.

Q2 Guidance

The company expects compensation and benefits to be $815 million, including performance fees of $50 million and $65 million from its investment in Putnam. It expects Putnam's contribution to reduce to $50-$55 million by the end of 2024.

Information systems and technology expenses are anticipated to be $155 million.

Occupancy expenses are projected to be $80 million.

General, administrative and other expenses are estimated to be $175 million.

Earnings Whispers

According to our proven model, the chances of BEN beating the Zacks Consensus Estimate for earnings this time are low. This is because it does not have the right combination of two key elements, a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).

You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Earnings ESP: Franklin has an Earnings ESP of -0.01%.

Zacks Rank: BEN currently has a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Finance Stocks Worth a Look

Here are a couple of finance stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time:

The Earnings ESP for Mr. Cooper Group COOP is +1.90% and it carries a Zacks Rank #3 at present. The company is slated to report first-quarter 2024 results on Apr 24.

Over the past 30 days, the Zacks Consensus Estimate for COOP’s quarterly earnings has moved 2.9% north to $2.11 per share.

SEI Investments SEIC is scheduled to release quarterly numbers on Apr 24. The company, which carries a Zacks Rank #2 at present, has an Earnings ESP of +2.50%.

SEIC’s quarterly earnings estimates have been revised 1% upward to 97 cents over the past month.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Franklin Resources, Inc. (BEN) : Free Stock Analysis Report

SEI Investments Company (SEIC) : Free Stock Analysis Report

MR. COOPER GROUP INC (COOP) : Free Stock Analysis Report

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