Market Overview - Wall Street's seasonal adages have not held true this year, with April ending on a mixed note and May showing impressive gains in U.S. stock markets [1][2] - All three major indexes finished May in the green, with the Dow rising 3.9%, the S&P 500 climbing 6.2%, and the Nasdaq Composite jumping 9.6%, marking their best monthly performances since November 2023 [2] Financial Services Sector Performance - The Financial Services sector was one of May's top performers, up 4.5%, with notable stocks including Coinbase Global, Northern Trust, BNY Mellon, Franklin Resources, and Bank of America [3][9] - Coinbase is positioned to benefit from heightened crypto market volatility and rising asset prices, with 83% of its total revenues coming from the U.S. market [7][10] - Northern Trust is leveraging organic expansion efforts and has launched Family Office Solutions targeting ultra-high-net-worth clients, which is expected to enhance its Wealth Management segment [12][13] - BNY Mellon is focusing on international growth initiatives and has seen a five-year CAGR of 6.2% in net interest income, with expectations for continued improvement [18][19] - Franklin has grown through acquisitions and partnerships, enhancing its presence in alternative investments and multi-asset solutions [22][23] - Bank of America is expected to benefit from higher interest rates, with a projected 6-7% rise in net interest income for 2025, supported by aggressive branch expansion [26][28] Company-Specific Insights - Coinbase is investing in infrastructure to expand crypto's practical use, including a low-cost Layer 2 scaling solution [8] - Northern Trust is focused on disciplined headcount management and process automation to improve productivity and meet financial targets, achieving a return on equity of 13% in Q1 2025 [14][15] - BNY Mellon is facing challenges with rising expenses and volatility in fee income, which constitutes almost 70% of total revenues [20] - Franklin's diversification into alternative asset classes is expected to drive assets under management growth, although market fluctuations pose risks to investment management fees [24][25] - Bank of America is enhancing its digital offerings and cross-selling products through initiatives like the Zelle money transfer system and the digital assistant Erica [29]

Core Viewpoint - Franklin Resources, Inc. (BEN) has shown resilience in its stock performance, gaining 6.2% over the past three months, contrasting with the industry's decline of 8.1% and the S&P 500 Index's dip of 2.7% [1] Group 1: Factors Driving Growth - Strategic acquisitions have expanded Franklin's investment capabilities, notably the acquisition of Putnam Investments in January 2024, which increased its defined contribution AUM to over $100 billion [5] - The acquisition of Lexington Partners in 2022 has enhanced Franklin's exposure to private equity and alternative investments, diversifying revenue streams and reducing reliance on traditional investment management fees [6] - Franklin has recorded a compound annual growth rate (CAGR) of 3.1% in AUM over the past five fiscal years, with growth continuing in the first half of fiscal 2025 [7] - Increasing client demand for alternative asset classes is expected to drive AUM expansion, supported by a regionally focused distribution model that has strengthened non-U.S. business [8] Group 2: Financial Position - As of March 31, 2025, Franklin has $5 billion in liquidity, including cash and cash equivalents, ensuring financial flexibility and no short-term debt, which reduces immediate financial strain [9] - The company announced a repurchase authorization of 27.2 million shares in December 2023, with 29.2 million shares remaining available for repurchase as of March 31, 2025, and a 3.2% increase in its common stock dividend [10][11] Group 3: Near-Term Challenges - Investment management fees, constituting 79.3% of total revenue, have shown volatility, with fluctuations influenced by AUM levels and market conditions [12] - Franklin's cost base has increased at a CAGR of 7.2% over the last three fiscal years, driven by investments in technology and talent, which may pressure bottom-line growth [14] Group 4: Valuation and Estimates - Franklin is trading at a forward 12-month price-to-earnings (P/E) multiple of 10.14X, below the industry average of 16.42X, but at a premium compared to peers Invesco and Grupo Aval [15][18] - Sales estimates for the current year (2025) are projected at $8.29 billion, reflecting a year-over-year decline of 2.27% [21] - Earnings estimates for 2025 and 2026 have been revised downward, indicating a cautious outlook from analysts [22]

Core Insights - The article discusses the author's commitment to Franklin Resources Inc. (BEN) despite a recent loss of approximately 3.7% in stock value, indicating a belief in the company's potential for recovery and growth [1] Group 1: Investment Strategy - The author employs a quantitative investment approach that combines fundamental analysis with momentum research, aiming to identify stocks with a significant disconnect between market perception and actual potential [1] - A proprietary software tool has been developed to track levels of optimism and pessimism in stock prices, which aids in making informed investment decisions [1] Group 2: Market Outlook - The focus is on investing in companies that are likely to surprise the market positively in the coming months, suggesting a strategy centered on identifying undervalued opportunities [1]

Core Viewpoint - Franklin Resources, Inc. (BEN) reported a preliminary assets under management (AUM) of $1.53 trillion as of April 30, 2025, reflecting a marginal decrease from the previous month due to long-term net outflows of $10 billion, which included $10 billion from Western Asset Management, partially offset by positive foreign exchange impacts [1] AUM Breakdown by Asset Class - Equity assets amounted to $597.3 billion, showing a slight decline from the previous month [2] - Fixed income AUM was $439.5 billion, down 1.5% from the prior month [2] - Alternative AUM increased marginally to $253.8 billion [2] - Multi-asset AUM stood at $174.2 billion, falling nearly 1% from March 2025 [2] - Cash management balance rose to $70 billion, up 1.6% from the previous month [2] Company Performance and Outlook - April was challenging for BEN due to long-term net outflows; however, improvements in alternative AUM and cash management, along with efforts for inorganic growth, are expected to support financials [3] - Over the past six months, BEN shares have decreased by 2.9%, contrasting with a 14% decline in the industry [4] Zacks Rank and Comparisons - Franklin currently holds a Zacks Rank 5 (Strong Sell) [6] - Other companies in the sector, such as Alliance Cap Management L.P. (AB) and Victory Capital Holdings, Inc. (VCTR), are set to announce their monthly performances soon, with AB shares rising 36.9% and VCTR shares gaining 16.6% over the past year [6]

Core Viewpoint - Franklin Resources Inc. reported second-quarter fiscal 2025 adjusted earnings of 47 cents per share, matching the Zacks Consensus Estimate but down from 56 cents in the prior year [1][2] Financial Performance - Net income on a GAAP basis was $151.4 million, reflecting a year-over-year increase of 21.9% [2] - Total operating revenues decreased by 1.9% year over year to $2.11 billion, surpassing the Zacks Consensus Estimate of $1.98 billion [3] - Investment management fees fell by 2.4% year over year to $1.67 billion, while sales and distribution fees increased by 1.8% to $364.9 million [4] - Total operating expenses declined by 2.9% year over year to $1.97 billion, with an operating margin of 6.9%, up from 6% in the previous year [5] Assets Under Management (AUM) - As of March 31, 2025, total AUM was $1.54 trillion, down 2.2% sequentially, with long-term net outflows of $26.2 billion during the quarter [6] - The average AUM decreased by 3.9% sequentially to $1.57 trillion [6] Capital Position - As of March 31, 2025, cash and cash equivalents and investments totaled $6.1 billion, while total stockholders' equity was $13.2 billion [7] Capital Distribution - In the reported quarter, the company repurchased 0.5 million shares for $10 million [8] Strategic Outlook - The company is focusing on diversifying its business through acquisitions and enhancing its distribution platform, which may support revenue growth despite rising expenses from technological upgrades [9]

Financial Data and Key Metrics Changes - The company's assets under management (AUM) ended the quarter at $1,540 billion, a decrease from the prior quarter due to long-term net outflows at Western Asset and negative market impacts [18][19] - Adjusted operating income was $377.2 million, a decrease of 8.6% from the prior quarter, primarily due to compensation expenses and the impact of Western [28][29] Business Line Data and Key Metrics Changes - Long-term inflows increased by 9% quarter over quarter, with gross sales increasing across all asset classes [19] - Multi-asset and alternatives generated a combined $9.7 billion in positive net flows, while equity long-term inflows were $38.9 billion, despite equity net outflows of $5.4 billion primarily in growth strategies [20][21] - Fixed income net outflows were $30.5 billion, but excluding Western, there were net inflows of $2.8 billion in multisector, munis, stable value, and high yield strategies [20][21] Market Data and Key Metrics Changes - The institutional unfunded pipeline increased by $2.3 billion to $20.4 billion during the quarter, the highest level since 2022 [6] - The company noted a shift in global market dynamics, with several foreign markets outperforming US indices for the first time in years [9][10] Company Strategy and Development Direction - The company aims to help clients navigate market volatility and benefit from emerging trends, emphasizing a diversified approach to asset allocation and portfolio construction [5][6] - There is a focus on growth in alternative assets, ETFs, and digital assets, with significant investments in these areas [22][30] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding global equity markets, citing uncertainty tied to US growth and tariff impacts [11][12] - The company anticipates that increased market volatility may spur interest in secondary private equity offerings and alternative credit businesses [16][17] Other Important Information - The company has offices in over 30 countries, with approximately 30% of AUM in countries outside the US [9] - The ETF business saw its fourteenth consecutive quarter of positive net flows, attracting $4.1 billion during the quarter [25][26] Q&A Session Summary Question: Guidance on fiscal year expenses given market movements - Management expects effective fee rates to remain around 38 basis points for the third quarter, with expenses projected to be flat compared to 2024 [36][39] Question: Estimate for base fee organic growth rate including Western - Management noted that long-term net flows excluding Western were about $7.4 billion, with positive flows in fixed income and alternatives [44][45] Question: Update on fixed income strategies and Western's health - Western experienced $10 billion in outflows but also had $5 billion in gross sales, indicating ongoing institutional interest [78][79] Question: Insights on international business contributions - The company reported positive momentum in gross sales across all regions, with AUM of approximately $470 billion outside the US [90]

Core Insights - Franklin Resources reported $2.11 billion in revenue for the quarter ended March 2025, reflecting a year-over-year decline of 1.9% and an EPS of $0.47 compared to $0.56 a year ago, with revenue exceeding the Zacks Consensus Estimate of $1.98 billion by 6.66% [1] Financial Performance - Total Net Flows were reported at $-23.5 billion, slightly better than the average estimate of $-23.99 billion [4] - Assets Under Management (AUM) for Fixed Income stood at $446 billion, Multi-Asset at $175.8 billion, Equity at $598.1 billion, Total AUM at $1,540.6 billion, Alternatives at $251.8 billion, and Cash Management at $68.9 billion, all compared to respective analyst estimates [4] - Operating Revenues from Investment Management Fees were $1.67 billion, a decrease of 2.4% year over year, while Sales and Distribution Fees increased by 1.8% year over year to $364.90 million [4] Market Performance - Shares of Franklin Resources have returned +4.4% over the past month, outperforming the Zacks S&P 500 composite's -0.5% change, although the stock currently holds a Zacks Rank 4 (Sell) indicating potential underperformance in the near term [3]

Financial Data and Key Metrics Changes - Assets under management (AUM) decreased to $1,540 billion, primarily due to long-term net outflows at Western Asset and negative market impacts [18][19] - Adjusted operating income was $377.2 million, a decrease of 8.6% from the prior quarter, mainly due to compensation expenses and the impact of Western [27][28] Business Line Data and Key Metrics Changes - Long-term inflows increased by 9% quarter over quarter, with gross sales rising across all asset classes [19] - Multi-asset and alternatives generated a combined $9.7 billion in positive net flows, while equity long-term inflows were $38.9 billion, despite net outflows of $5.4 billion in growth strategies [20][21] - Fixed income net outflows were $30.5 billion, but excluding Western, there were net inflows of $2.8 billion [20][21] Market Data and Key Metrics Changes - The institutional unfunded pipeline increased by $2.3 billion to $20.4 billion, the highest level since 2022 [5] - International markets accounted for approximately $470 billion, or about 30% of AUM, with positive net flows in the EMEA and Americas regions [7][26] Company Strategy and Development Direction - The company aims to leverage market volatility to enhance client asset growth through diversified investment solutions [4][17] - Focus on expanding alternative assets and wealth management channels, projecting $800 billion to be allocated to democratize alternatives industry-wide over the next five years [22][64] - Continued integration of Western Asset to create efficiencies while maintaining investment team autonomy [28] Management's Comments on Operating Environment and Future Outlook - Management remains cautiously constructive on global equity markets, citing concerns over US growth and tariff impacts [10][11] - The company anticipates that a recession in the US is not a foregone conclusion, with the economy being better insulated compared to export-dependent countries [11][12] - Positive sentiment around the potential for growth in private markets and alternatives, with a strong focus on educating financial advisers [63][64] Other Important Information - The company launched its first perpetual secondary private equity fund, raising an initial $2 billion [23] - The ETF business saw its fourteenth consecutive quarter of positive net flows, attracting $4.1 billion during the quarter [24][25] Q&A Session Summary Question: Guidance on fiscal year expenses given market movements - Management expects effective fee rates to remain around 38 basis points, with expenses projected to be flat compared to 2024 [36][39] Question: Estimate for base fee organic growth rate including Western - Management noted that long-term net flows excluding Western were about $7.4 billion, with positive flows in fixed income and alternatives [45][46] Question: Update on fixed income strategies and Western's health - Western experienced $10 billion in outflows but also had $5 billion in gross sales, indicating ongoing institutional interest [78][79] Question: Contribution of international business to revenues and flows - The company reported positive momentum in gross sales across all regions, with AUM outside the US at approximately $470 billion [92]

Franklin Resources (BEN) came out with quarterly earnings of $0.47 per share, in line with the Zacks Consensus Estimate. This compares to earnings of $0.56 per share a year ago. These figures are adjusted for non-recurring items.A quarter ago, it was expected that this investment manager would post earnings of $0.53 per share when it actually produced earnings of $0.59, delivering a surprise of 11.32%.Over the last four quarters, the company has surpassed consensus EPS estimates two times.Franklin Resources ...

Assets Under Management (AUM) - Total assets under management (AUM) as of March 31, 2025, were $1,540.6 billion, an 8% decrease from $1,675.7 billion at September 30, 2024[68]. - Average AUM for the three months ended March 31, 2025, was $1,570.5 billion, a 1% decrease from $1,581.1 billion in the same period of 2024[73]. - AUM at March 31, 2025, was $1,540.6 billion, down from $1,644.7 billion at March 31, 2024, representing a 6% decrease[84]. - AUM decreased by $35.1 billion, or 2%, during the three months ended March 31, 2025, primarily due to $26.2 billion of long-term net outflows and a negative impact of $11.6 billion from net market changes[79]. - Cash management AUM increased by 12% to $68.9 billion as of March 31, 2025, compared to $61.7 billion in the previous year[72]. - AUM in the U.S. decreased by 7% to $1,071.3 billion as of March 31, 2025, compared to $1,155.9 billion in the previous year[84]. - The mix of average AUM for equity increased to 40% in 2025 from 35% in 2024, while fixed income decreased to 29% from 35%[73]. Revenue and Income - Operating revenues for the three months ended March 31, 2025, were $2,111.4 million, a 2% decrease compared to $2,152.8 million for the same period in 2024[71]. - Total operating revenues for the six months ended March 31, 2025, were $4,363.0 million, up from $4,143.9 million in 2024, representing an increase of 5%[132]. - Net income attributable to Franklin Resources, Inc. for the three months ended March 31, 2025, was $151.4 million, a 22% increase from $124.2 million in the prior year[71]. - Adjusted net income for the six months ended March 31, 2025, was $574.9 million, a 9% decrease from $635.1 million in the same period of 2024[71]. - Diluted earnings per share for the three months ended March 31, 2025, increased to $0.26 from $0.23 in 2024, a rise of 13%[133]. Expenses and Cost Management - Total operating expenses for the three months ended March 31, 2025, were $1,965.8 million, a decrease of 3% compared to $2,023.5 million in the same period of 2024[99]. - Compensation and benefits expenses decreased by $108.2 million (11%) for the three months ended March 31, 2025, primarily due to headcount reductions[99]. - The company plans to focus on expense management while investing strategically in systems and technology to enhance service quality[70]. - The effective investment management fee rate excluding performance fees was 41.4 basis points for the three months ended March 31, 2025, unchanged from the same period in 2024[93]. - Total operating expenses increased by 5% to $3,998.4 million for the six months ended March 31, 2025, compared to $3,808.1 million in the prior year[99]. Cash Flow and Investments - Operating cash flows for the six months ended March 31, 2025, were $(195.3) million, compared to $(115.3) million in 2024, indicating a worsening cash flow situation[134]. - Cash and cash equivalents as of March 31, 2025, were $2,714.3 million, down from $3,261.1 million in 2024, a decrease of 17%[137]. - Net cash used in investing activities increased to $(1,020.6) million for the six months ended March 31, 2025, compared to $(410.8) million in 2024, indicating a significant rise in investment expenditures[134]. - The company expects to invest more of its post-dividend free cash flow into business growth, including seed capital and acquiring resources for investment teams[146]. Market Performance and Flows - Long-term net flows for the three months ended March 31, 2025, were negative at $(26.2) billion, compared to positive net flows of $6.9 billion in the same period of 2024[76]. - Long-term inflows increased by 2% to $86.8 billion compared to the prior year, driven by higher inflows in alternative private funds and equity[80]. - Long-term outflows increased by 45% to $113.0 billion, largely due to higher outflows from fixed income vehicles and ongoing regulatory investigations[80]. - The market depreciation primarily occurred in the equity asset class, with a $16.7 billion decrease attributed to market conditions[81]. Shareholder Actions - The company repurchased 0.5 million shares at a cost of $10.0 million during the three months ended March 31, 2025, and 0.8 million shares at a cost of $15.8 million during the six months ended March 31, 2025[148]. - The company declared regular dividends of $0.64 per share during the six months ended March 31, 2025, compared to $0.62 per share in 2024, reflecting a 3% increase[147]. - The company authorized the repurchase of up to an additional 27.2 million shares in December 2023, bringing the total available for repurchase to 40.0 million shares[148]. Tax and Regulatory Matters - The effective income tax rate increased to 72.8% for the three months ended March 31, 2025, compared to 26.4% in the prior year, primarily due to losses of consolidated investment products (CIPs) with no related tax benefits[124]. - Investments held by consolidated investment products generated losses of $164.7 million for the three months ended March 31, 2025, compared to gains of $89.9 million in the prior year[121].