Franklin Resources’ Profit Declines 11%
Franklin Resources Inc.’s fiscal second-quarter earnings fell 11%, the first decline in three years, because of costs from bringing back profit from abroad and reducing the value of assets at a trust unit, the company said Thursday.
Net income dropped to $196.5 million, or 74 cents a share, in the quarter ended March 31 from $221.3 million, or 85 cents, a year earlier, the San Mateo, Calif.-based money manager said. Revenue rose 19% to $1.25 billion.
Franklin is repatriating $2 billion under a jobs law that allows the company to pay lower taxes in exchange for spending the money in the U.S. Along with writing down investments at a reorganized unit, Franklin had extra expenses of $180 million, or 59 cents a share. Compounding those costs, net sales added up to $2.5 billion, less than half that of the previous quarter.
Inflows “may disappoint some investors, especially relative to strong flows coming out of other asset managers,” Morgan Stanley analyst Chris Meyer said in a report. He rates the stock “overweight.”
Rival money managers including AllianceBernstein Holding and T. Rowe Price Group Inc. reported higher earnings Wednesday, helped by increased deposits. AllianceBernstein had inflows of $12 billion in funds and accounts, the most among money managers that have released first-quarter profits. T. Rowe Price, which has fewer total assets, had $9.6 billion in net new money.
Meyer said one- and three-year performance of the company’s Franklin and Templeton mutual funds was weaker than five-year results, which may be giving investors pause.
“This was a slower quarter, but we don’t think that’s indicative of the future,” said Paul Welch, an analyst at Chicago-based Ariel Capital Management, which owns 3 million shares of Franklin. “They have a premier global business.”
Shares of Franklin fell $4.52, or 4.6%, to $93.18, the biggest decline since Nov. 14, 2003. They’ve gained 40% in the last year, while the Standard & Poor’s supercomposite asset management and custody banks index has risen 39%.
Franklin said funds under management increased 19% to $491.6 billion in the last year.
Investment management fees climbed 22% to $726 million, while expenses rose 16% to $905 million.
