Franklin Profit Falls on $19 Billion Drop in Investor Assets

  • Assets under management declined 16 percent to $732.1 billion
  • Fiscal third-quarter earnings beat analyst estimates

Money manager Franklin Resources Inc. said fiscal third-quarter profit dropped 11 percent as investors pulled $19.2 billion in assets from the company.

Net income for the three months ended June 30 fell to $446.4 million, or 77 cents a share, from $504.2 million, or 82 cents, a year earlier, the firm said in a statement Thursday. Franklin beat the 67 cents a share average estimate of analysts surveyed by Bloomberg.

Franklin, like other asset managers that specialize in picking stocks and bonds, has been hurt by a growing investor preference for funds that mimic indexes. Assets under management slid 16 percent to $732.1 billion in the quarter from a year earlier. The firm is also being hurt as its best known product, the $47.2 billion Templeton Global Bond fund, has underperformed most rivals.

“The weak performance has triggered massive outflows and Franklin doesn’t seem to have a way of limiting them,” Brennan Hawken, an analyst for UBS Securities, said in a telephone interview before earnings were released. Hawken cut his rating on Franklin from “neutral” to “sell” in June.

Franklin gained 0.8 percent to $35.13 at 12:18 pm. The shares are down 5.4 percent this year through yesterday.

Operating revenue fell 18 percent to $1.63 billion from a year ago. Operating expenses declined 16 percent as continued trimming costs to cope with redemptions. The company cut global staff about 2.4 percent during the first three months of 2016.

Johnson today reiterated that the asset management business might be ripe for consolidation given the pressures on firms that pick stocks and bonds. Asked about Franklin’s merger and acquisition plans on a conference call, he said, “We are open to anything that creates value. We are always looking.” He said the firm had no particular timetable for doing deals.

Templeton Global Bond, run by Michael Hasenstab, experienced $16.4 billion in redemptions over the past year, according to data compiled by Bloomberg. The fund trailed 97 percent of peers over the past year and 84 percent over the past three years, according to Morningstar Inc. Over 10 years it still beat 98 percent of comparable funds.

Analysts remain skeptical about Franklin’s prospects. Of the analysts who follow Franklin, only one has a buy rating on the stock, data compiled by Bloomberg show.

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