SOURCE: Franklin Resources, Inc.

Franklin Resources, Inc.

January 30, 2014 08:23 ET

Franklin Resources, Inc. Announces First Quarter Results

SAN MATEO, CA--(Marketwired - Jan 30, 2014) -  Franklin Resources, Inc. (the "Company") (NYSE: BEN) today announced net income1 of $603.8 million or $0.96 per diluted share for the quarter ended December 31, 2013, as compared to $509.0 million or $0.80 per diluted share for the previous quarter and $516.1 million or $0.81 per diluted share for the quarter ended December 31, 2012. 

                         
    Quarter Ended           Quarter Ended        
    31-Dec-13     30-Sep-13     % Change
Qtr. vs. Qtr.
31-Dec-12     % Change
Year vs. Year
Financial Results                                    
(dollars in millions, except per share data)                                    
Operating revenues   $ 2,109.5     $ 1,984.8     6 %   $ 1,901.8     11 %
Operating income   $ 813.1     $ 735.1     11 %   $ 685.1     19 %
Operating margin     38.5 %     37.0 %           36.0 %      
                                     
Net income1   $ 603.8     $ 509.0     19 %   $ 516.1     17 %
Diluted earnings per share   $ 0.96     $ 0.80     20 %   $ 0.81     19 %
                                     
Assets Under Management                                    
(in billions)                                    
Ending   $ 879.1     $ 844.7     4 %   $ 781.8     12 %
Average2     865.9       827.8     5 %     763.6     13 %
Net new flows     -       (2.7 )   NM       0.3     NM  
                                     

Non-operating income for the quarter ended December 31, 2013 included $48.2 million of investment and other income (losses), net, as compared to $(0.1) million for the prior quarter and $45.5 million for the quarter ended December 31, 2012.

Total assets under management ("AUM") were $879.1 billion at December 31, 2013, up $34.4 billion or 4% during the quarter. The increase was primarily due to $36.0 billion in market appreciation. AUM increased $97.3 billion or 12% year over year, primarily due to $77.3 billion of market appreciation and $24.0 billion of net new flows.

Cash and cash equivalents and investments were $9.0 billion at December 31, 2013, as compared to $8.6 billion at September 30, 2013. Total stockholders' equity was $11.1 billion at December 31, 2013, as compared to $10.7 billion at September 30, 2013. The Company had 630.9 million shares of common stock outstanding at December 31, 2013 and September 30, 2013. During the quarter ended December 31, 2013, the Company repurchased 2.5 million shares of its common stock for a total cost of $137.1 million.

Conference Call Information

Pre-recorded audio commentary on the results from Franklin Resources, Inc.'s Chairman, CEO and President Greg Johnson and CFO and Executive Vice President Ken Lewis will be available today at approximately 8:30 a.m. Eastern Time. They will also lead a live teleconference today at 10:30 a.m. Eastern Time to answer questions of a material nature. Analysts and investors are encouraged to review the Company's recent filings with the U.S. Securities and Exchange Commission and to contact Investor Relations before the live teleconference for any clarifications or questions related to the earnings release or pre-recorded audio commentary.

Access to the pre-recorded audio commentary and accompanying slides are available at franklinresources.com. The pre-recorded audio commentary can also be accessed by dialing (888) 843-7419 in the U.S. and Canada or (630) 652-3042 internationally using access code 36435070, any time through March 1, 2014.

Access to the live teleconference will be available at franklinresources.com or by dialing (800) 446-1671 in the U.S. and Canada or (847) 413-3362 internationally. A replay of the call can also be accessed by calling (888) 843-7419 in the U.S. and Canada or (630) 652-3042 internationally using access code 36435056, after 1:00 p.m. Eastern Time on January 30, 2014 through March 1, 2014.

Questions regarding the pre-recorded audio commentary or live teleconference should be directed to Franklin Resources, Inc., Investor Relations at (650) 312-4091 or Media Relations at (650) 312-2245.

Performance Rankings of Franklin Templeton's U.S.-Registered and Cross-Border Long-Term Mutual Funds3,4,5:

     
  Percentage of Assets in Top Two Peer Group Quartiles  
Period Ended December 31, 2013 1-Year   3-Year   5-Year   10-Year  
Equity and Hybrid (AUM: $305 billion) 35 % 70 % 69 % 76 %
Fixed-Income (AUM: $289 billion) 78 % 85 % 77 % 91 %
  Total (AUM: $594 billion) 56 % 77 % 73 % 84 %
                   

Performance quoted above represents past performance, which cannot predict or guarantee future results. All investments involve risks, including loss of principal.

   
Franklin Resources, Inc.  
Condensed Consolidated Statements of Income  
Unaudited  
   
    Three Months Ended
December 31,
       
(in millions, except per share data and AUM) 2013     2012     % Change
Operating Revenues                      
  Investment management fees   $ 1,373.8     $ 1,199.9     14 %
  Sales and distribution fees     636.7       604.1     5 %
  Shareholder servicing fees     76.1       74.4     2 %
  Other, net     22.9       23.4     (2 )%
    Total operating revenues     2,109.5       1,901.8     11 %
Operating Expenses                      
  Sales, distribution and marketing     776.7       730.9     6 %
  Compensation and benefits     349.0       335.1     4 %
  Information systems and technology     50.2       43.6     15 %
  Occupancy     33.1       33.4     (1 )%
  General, administrative and other     87.4       73.7     19 %
    Total operating expenses     1,296.4       1,216.7     7 %
Operating Income     813.1       685.1     19 %
Other Income (Expenses)                      
  Investment and other income, net     48.2       45.5     6 %
  Interest expense     (12.6 )     (14.5 )   (13 )%
    Other income, net     35.6       31.0     15 %
  Income before taxes     848.7       716.1     19 %
  Taxes on income     252.7       211.4     20 %
  Net income     596.0       504.7     18 %
  Less: net income (loss) attributable to                      
    Nonredeemable noncontrolling interests     (17.2 )     (12.7 )   35 %
    Redeemable noncontrolling interests     9.4       1.3     623 %
Net Income Attributable to Franklin Resources, Inc.   $ 603.8     $ 516.1     17 %
                       
Earnings per Share                      
  Basic   $ 0.96     $ 0.81     19 %
  Diluted     0.96       0.81     19 %
Dividends per Share   $ 0.120     $ 1.097     (89 )%
                       
Average Shares Outstanding                      
  Basic     628.1       634.5     (1 )%
  Diluted     628.5       635.4     (1 )%
                       
Operating Margin     38.5 %     36.0 %      
                       
AUM (in billions)                      
  Ending   $ 879.1     $ 781.8     12 %
  Average     865.9       763.6     13 %
  Net new flows     -       0.3     NM  
   
   
   
Franklin Resources, Inc.  
Condensed Consolidated Statements of Income  
Unaudited  
   
    Three Months Ended           Three Months Ended  
(in millions, except per share data and employees)   31-Dec-13     30-Sep-13     % Change 30-Jun-13     31-Mar-13     31-Dec-12  
Operating Revenues                                              
  Investment management fees   $ 1,373.8     $ 1,285.7     7 %   $ 1,318.3     $ 1,267.5     $ 1,199.9  
  Sales and distribution fees     636.7       604.7     5 %     664.5       642.7       604.1  
  Shareholder servicing fees     76.1       75.2     1 %     77.5       76.6       74.4  
  Other, net     22.9       19.2     19 %     24.5       26.8       23.4  
    Total operating revenues     2,109.5       1,984.8     6 %     2,084.8       2,013.6       1,901.8  
Operating Expenses                                              
  Sales, distribution and marketing     776.7       717.6     8 %     812.8       780.8       730.9  
  Compensation and benefits     349.0       348.8     0 %     345.5       355.1       335.1  
  Information systems and technology     50.2       58.3     (14 )%     44.4       44.8       43.6  
  Occupancy     33.1       35.0     (5 )%     33.9       31.9       33.4  
  General, administrative and other     87.4       90.0     (3 )%     76.5       71.6       73.7  
    Total operating expenses     1,296.4       1,249.7     4 %     1,313.1       1,284.2       1,216.7  
Operating Income     813.1       735.1     11 %     771.7       729.4       685.1  
Other Income (Expenses)                                              
  Investment and other income (losses), net     48.2       (0.1 )   NM       10.3       96.5       45.5  
  Interest expense     (12.6 )     (11.5 )   10 %     (10.0 )     (10.9 )     (14.5 )
    Other income (expenses), net     35.6       (11.6 )   NM       0.3       85.6       31.0  
  Income before taxes     848.7       723.5     17 %     772.0       815.0       716.1  
  Taxes on income     252.7       213.0     19 %     209.9       221.6       211.4  
  Net income     596.0       510.5     17 %     562.1       593.4       504.7  
  Less: net income (loss) attributable to                                              
    Nonredeemable noncontrolling interests     (17.2 )     3.8     NM       8.0       17.8       (12.7 )
    Redeemable noncontrolling interests     9.4       (2.3 )   NM       1.8       2.8       1.3  
Net Income Attributable to Franklin Resources, Inc.   $ 603.8     $ 509.0     19 %   $ 552.3     $ 572.8     $ 516.1  
                                               
Earnings per Share                                              
  Basic   $ 0.96     $ 0.80     20 %   $ 0.87     $ 0.90     $ 0.81  
  Diluted     0.96       0.80     20 %     0.86       0.90       0.81  
Dividends per Share   $ 0.120     $ 0.100     20 %   $ 0.097     $ 0.097     $ 1.097  
                                               
Average Shares Outstanding                                              
  Basic     628.1       630.5     0 %     633.6       634.0       634.5  
  Diluted     628.5       631.3     0 %     634.3       634.7       635.4  
                                               
Operating Margin     38.5 %     37.0 %           37.0 %     36.2 %     36.0 %
                                               
Employees     9,065       9,002     1 %     8,952       8,725       8,702  
Billable Shareholder Accounts     24.7       24.2     2 %     24.9       24.4       23.3  
   
   
   
AUM AND FLOWS  
   
    Three Months Ended
December 31,
       
(in billions)   2013     2012     %
Change
 
Beginning AUM   $ 844.7     $ 749.9     13 %
  Long-term sales     49.8       46.0     8 %
  Long-term redemptions     (49.7 )     (44.7 )   11 %
  Net cash management     (0.1 )     (1.0 )   (90 )%
    Net new flows     -       0.3     NM  
  Reinvested distributions     9.7       9.1     7 %
    Net flows     9.7       9.4     3 %
  Distributions     (11.3 )     (11.0 )   3 %
  Acquisition     -       8.7     (100 )%
  Appreciation and other6     36.0       24.8     45 %
Ending AUM   $ 879.1     $ 781.8     12 %
 
 
 
AUM BY INVESTMENT OBJECTIVE
 
(in billions)   31-Dec-13   30-Sep-13   % Change     30-Jun-13   31-Mar-13   31-Dec-12
Equity                                    
  Global/international   $ 260.4   $ 243.9   7 %   $ 224.0   $ 231.0   $ 222.2
  United States     105.3     97.2   8 %     89.5     88.9     81.2
    Total equity     365.7     341.1   7 %     313.5     319.9     303.4
Hybrid     147.8     137.5   7 %     129.4     129.2     121.0
Fixed-Income                                    
  Tax-free     69.0     72.4   (5 )%     79.1     84.5     84.3
  Taxable                                    
    Global/international     231.3     228.8   1 %     229.1     226.5     209.8
    United States     58.7     58.3   1 %     57.5     58.2     57.6
    Total fixed-income     359.0     359.5   0 %     365.7     369.2     351.7
Cash Management     6.6     6.6   0 %     6.4     5.4     5.7
    Total AUM   $ 879.1   $ 844.7   4 %   $ 815.0   $ 823.7   $ 781.8
Average AUM for the Three-Month Period   $ 865.9   $ 827.8   5 %   $ 833.2   $ 807.3   $ 763.6
   
   
   
AUM AND FLOWS - UNITED STATES AND INTERNATIONAL7  
   
    As of and for the Three Months Ended  
(in billions)   31-Dec-13     % of Total     30-Sep-13     % of Total     31-Dec-12     % of Total  
Long-Term Sales                                          
  United States   $ 25.3     51 %   $ 25.8     54 %   $ 23.0     50 %
  International     24.5     49 %     22.2     46 %     23.0     50 %
    Total long-term sales   $ 49.8     100 %   $ 48.0     100 %   $ 46.0     100 %
Long-Term Redemptions                                          
  United States   $ (25.5 )   51 %   $ (27.9 )   55 %   $ (23.2 )   52 %
  International     (24.2 )   49 %     (22.6 )   45 %     (21.5 )   48 %
    Total long-term redemptions   $ (49.7 )   100 %   $ (50.5 )   100 %   $ (44.7 )   100 %
AUM                                          
  United States   $ 568.9     65 %   $ 545.5     65 %   $ 507.3     65 %
  International     310.2     35 %     299.2     35 %     274.5     35 %
    Total AUM   $ 879.1     100 %   $ 844.7     100 %   $ 781.8     100 %
 
   
   
   
AUM AND FLOWS BY INVESTMENT OBJECTIVE  
   
(in billions)   Equity           Fixed-Income              
for the three months ended December 31, 2013   Global/
International
    United
States
    Hybrid     Tax-Free     Taxable
Global/
International
    Taxable
United
States
    Cash
Management
    Total  
AUM at October 1, 2013   $ 243.9     $ 97.2     $ 137.5     $ 72.4     $ 228.8     $ 58.3     $ 6.6     $ 844.7  
  Long-term sales     15.1       6.1       6.5       1.9       15.9       4.3       -       49.8  
  Long-term redemptions     (12.3 )     (6.1 )     (4.1 )     (4.5 )     (18.4 )     (4.3 )     -       (49.7 )
  Net exchanges     0.3       0.4       0.8       (0.8 )     (0.6 )     (0.2 )     0.1       -  
  Net cash management     -       -       -       -       -       -       (0.1 )     (0.1 )
    Net new flows     3.1       0.4       3.2       (3.4 )     (3.1 )     (0.2 )     -       -  
  Reinvested distributions     3.0       2.5       1.5       0.6       1.6       0.5       -       9.7  
    Net flows     6.1       2.9       4.7       (2.8 )     (1.5 )     0.3       -       9.7  
  Distributions     (3.3 )     (2.7 )     (1.7 )     (0.8 )     (2.2 )     (0.6 )     -       (11.3 )
  Appreciation and other6     13.7       7.9       7.3       0.2       6.2       0.7       -       36.0  
AUM at December 31, 2013   $ 260.4     $ 105.3     $ 147.8     $ 69.0     $ 231.3     $ 58.7     $ 6.6     $ 879.1  
                               
                               
                               
(in billions)   Equity           Fixed-Income              
for the three months ended
September 30, 2013
  Global/
International
    United
States
    Hybrid     Tax-Free     Taxable
Global/
International
    Taxable
United
States
    Cash
Management
    Total  
AUM at July 1, 2013   $ 224.0     $ 89.5     $ 129.4     $ 79.1     $ 229.1     $ 57.5     $ 6.4     $ 815.0  
  Long-term sales     12.5       5.5       6.8       2.5       16.1       4.6       -       48.0  
  Long-term redemptions     (11.5 )     (5.2 )     (5.1 )     (6.2 )     (18.6 )     (3.9 )     -       (50.5 )
  Net exchanges     0.2       0.9       1.5       (1.7 )     (1.1 )     (0.2 )     0.4       -  
  Net cash management     -       -       -       -       -       -       (0.2 )     (0.2 )
    Net new flows     1.2       1.2       3.2       (5.4 )     (3.6 )     0.5       0.2       (2.7 )
  Reinvested distributions     0.5       0.4       1.0       0.6       1.2       0.3       -       4.0  
    Net flows     1.7       1.6       4.2       (4.8 )     (2.4 )     0.8       0.2       1.3  
  Distributions     (0.6 )     (0.4 )     (1.2 )     (0.7 )     (1.8 )     (0.5 )     -       (5.2 )
  Acquisition     -       -       0.2       -       0.3       -       -       0.5  
  Appreciation (depreciation) and other6     18.8       6.5       4.9       (1.2 )     3.6       0.5       -       33.1  
AUM at September 30, 2013   $ 243.9     $ 97.2     $ 137.5     $ 72.4     $ 228.8     $ 58.3     $ 6.6     $ 844.7  
                               
                               
                               
(in billions)   Equity           Fixed-Income              
for the three months ended December 31, 2012   Global/
International
    United
States
    Hybrid     Tax-Free     Taxable
Global/
International
    Taxable
United
States
    Cash
Management
    Total  
AUM at October 1, 2012   $ 214.9     $ 82.2     $ 110.1     $ 83.2     $ 196.4     $ 56.7     $ 6.4     $ 749.9  
  Long-term sales     9.6       3.4       5.5       3.8       19.7       4.0       -       46.0  
  Long-term redemptions     (13.8 )     (5.1 )     (4.8 )     (3.2 )     (14.0 )     (3.8 )     -       (44.7 )
  Net exchanges     (0.2 )     (0.3 )     (0.2 )     -       0.2       0.2       0.3       -  
  Net cash management     -       -       -       -       -       -       (1.0 )     (1.0 )
    Net new flows     (4.4 )     (2.0 )     0.5       0.6       5.9       0.4       (0.7 )     0.3  
  Reinvested distributions     2.5       1.4       1.2       0.6       2.9       0.5       -       9.1  
    Net flows     (1.9 )     (0.6 )     1.7       1.2       8.8       0.9       (0.7 )     9.4  
  Distributions     (2.6 )     (1.5 )     (1.5 )     (0.8 )     (3.8 )     (0.8 )     -       (11.0 )
  Acquisition     -       -       8.7       -       -       -       -       8.7  
  Appreciation and other6     11.8       1.1       2.0       0.7       8.4       0.8       -       24.8  
AUM at December 31, 2012   $ 222.2     $ 81.2     $ 121.0     $ 84.3     $ 209.8     $ 57.6     $ 5.7     $ 781.8  
                                                                 

Notes

1. Net income represents net income attributable to Franklin Resources, Inc.

2. Average AUM represents simple monthly average AUM.

3. Nothing in this section shall be considered a solicitation to buy or an offer to sell a security to any person in any jurisdiction where such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction.

4. Franklin/Templeton Distributors, Inc., a wholly owned subsidiary of Franklin Resources, Inc., is the principal distributor of Franklin Templeton Investments' U.S. registered funds, which are available only in jurisdictions where an offer or solicitation of such products is permitted under applicable legislation. Products, services and information may not be available in all jurisdictions and are offered outside the U.S. by other Franklin Templeton Investments affiliates and/or their distributors as local legislation permits.

5. The peer group rankings are sourced from either Lipper© or Morningstar©, as the case may be, and are based on an absolute ranking of returns as of December 31, 2013. Lipper rankings for Franklin Templeton U.S.-registered long-term mutual funds are based on Class A shares and do not include sales charges. Franklin Templeton U.S.-registered long-term funds are compared against a universe of all share classes. Performance rankings for other share classes may differ. Morningstar rankings for Franklin Templeton cross-border long-term mutual funds are based on primary share classes and do not include sales charges. Performance rankings for other share classes may differ. Results may have been different if these or other factors had been considered. The figures in the table are based on data available from Lipper Inc. as of January 7, 2014 and Morningstar as of January 8, 2014 and are subject to revision.

6. Appreciation (depreciation) and other includes the impact of foreign exchange revaluation.

7. International includes North America-based advisors serving non-resident clients.

Franklin Resources, Inc. is a global investment management organization operating as Franklin Templeton Investments. Franklin Templeton Investments provides global and domestic investment management solutions managed by its Franklin, Templeton, Mutual Series, Bissett, Fiduciary Trust, Darby, Balanced Equity Management and K2 investment teams. The San Mateo, CA-based company has more than 65 years of investment experience and $879.1 billion in AUM as of December 31, 2013. The Company posts information that may be significant for investors in the Investor Relations and News Center sections of its website, and encourages investors to consult those sections regularly. For more information about the company, please visit franklinresources.com.

Forward-Looking Statements

Statements in this press release regarding Franklin Resources, Inc. ("Franklin") and its subsidiaries, which are not historical facts, are "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. When used in this press release, words or phrases generally written in the future tense and/or preceded by words such as "will," "may," "could," "expect," "believe," "anticipate," "intend," "plan," "seek," "estimate" or other similar words are forward-looking statements.

Forward-looking statements involve a number of known and unknown risks, uncertainties and other important factors, some of which are listed below, that could cause actual results and outcomes to differ materially from any future results or outcomes expressed or implied by such forward-looking statements. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. We caution you therefore against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance.

These and other risks, uncertainties and other important factors are described in more detail in Franklin's recent filings with the U.S. Securities and Exchange Commission, including, without limitation, in Risk Factors and Management's Discussion and Analysis of Financial Condition and Results of Operations in Franklin's Annual Report on Form 10-K for the fiscal year ended September 30, 2013 and Franklin's subsequent Quarterly Report on Form 10-Q:

  • Volatility and disruption of the capital and credit markets, and adverse changes in the global economy, may significantly affect our results of operations and may put pressure on our financial results.
  • The amount and mix of our AUM are subject to significant fluctuations.
  • We are subject to extensive, complex, overlapping and frequently changing rules, regulations and legal interpretations.
  • U.S. regulatory and legislative actions and reforms have made the regulatory environment in which we operate more costly and future actions and reforms could adversely impact our financial condition and results of operations.
  • Failure to comply with the laws, rules or regulations in any of the non-U.S. jurisdictions in which we operate could result in substantial harm to our reputation and results of operations.
  • Changes in tax laws or exposure to additional income tax liabilities could have a material impact on our financial condition, results of operations and liquidity.
  • Any significant limitation, failure or security breach of our information and cyber security infrastructure, software applications, technology or other systems that are critical to our operations could constrain our operations.
  • Our business operations are complex and a failure to properly perform operational tasks or the misrepresentation of our products and services, or the termination of investment management agreements representing a significant portion of our AUM, could have an adverse effect on our revenues and income.
  • We face risks, and corresponding potential costs and expenses, associated with conducting operations and growing our business in numerous countries.
  • We depend on key personnel and our financial performance could be negatively affected by the loss of their services.
  • Strong competition from numerous and sometimes larger companies with competing offerings and products could limit or reduce sales of our products, potentially resulting in a decline in our market share, revenues and income.
  • Changes in the third-party distribution and sales channels on which we depend could reduce our income and hinder our growth.
  • Our increasing focus on international markets as a source of investments and sales of investment products subjects us to increased exchange rate and other risks in connection with our revenues and income generated overseas.
  • Harm to our reputation or poor investment performance of our products could reduce the level of our AUM or affect our sales, potentially negatively impacting our revenues and income.
  • Our future results are dependent upon maintaining an appropriate level of expenses, which is subject to fluctuation.
  • Our ability to successfully manage and grow our business can be impeded by systems and other technological limitations.
  • Our inability to successfully recover should we experience a disaster or other business continuity problem could cause material financial loss, loss of human capital, regulatory actions, reputational harm, or legal liability.
  • Certain of the portfolios we manage, including our emerging market portfolios, are vulnerable to significant market-specific political, economic or other risks, any of which may negatively impact our revenues and income.
  • Regulatory and governmental examinations and/or investigations, litigation and the legal risks associated with our business, could adversely impact our AUM, increase costs and negatively impact our profitability and/or our future financial results.
  • Our ability to meet cash needs depends upon certain factors, including the market value of our assets, operating cash flows and our perceived creditworthiness.
  • Our business could be negatively affected if we or our banking subsidiaries fail to satisfy regulatory and supervisory standards.
  • We are dependent on the earnings of our subsidiaries.

Any forward-looking statement made by us in this press release speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

Contact Information

  • Contact:
    Franklin Resources, Inc.
    Investor Relations:
    Brian Sevilla
    (650) 312-4091

    Media Relations:
    Matt Walsh
    (650) 312-2245
    franklinresources.com