Franklin Resources (BEN) Q3 2024 earnings summary

Executive summary

• Ended the quarter with $1.65 trillion in AUM, flat sequentially and up 15% year-over-year, driven by the Putnam acquisition and positive markets.

• Operating revenues rose 8% year-over-year to $2.12 billion, with net income at $174.0 million for the quarter, down 24% year-over-year.

• Investment performance remained strong, with 53% to 70% of strategy composite AUM outperforming benchmarks across 1-, 3-, 5-, and 10-year periods.

• Long-term net outflows were $3.2 billion, but positive net flows in multi-asset, alternatives, and ETFs offset some outflows.

• Continued innovation in technology, including a partnership with Microsoft for AI and a unified investment management platform.

Financial highlights

• Adjusted operating income was $424.9 million, up 1% sequentially but down 11% year-over-year.

• Operating margin was 10.5% for the quarter, down from 16% year-over-year but up from 6% sequentially; adjusted operating margin was 25.7%.

• Average AUM rose 3% sequentially and 15% year-over-year to $1.63 trillion.

• Reinvested distributions were $3.6 billion, up from $3.1 billion last quarter.

• Company repurchased 4.3 million shares for $101.5 million during the quarter.

Outlook and guidance

• Expect two Federal Reserve rate cuts in the remainder of the year, supporting fixed income sectors.

• Effective fee rate expected to remain stable at 37.5 bps next quarter.

• Compensation and benefits projected at $825 million, IS&T at $150–$155 million, occupancy at $77–$78 million, and G&A at $175–$180 million for the next quarter.

• Implementation costs for Aladdin platform expected to be $100 million over 3–5 years, with most costs absorbed and annual savings of $15–$25 million expected by 2028–2029.

• Management expects continued expense pressure from acquisition-related retention and integration costs, with $60 million in additional retention expenses anticipated in the remainder of the fiscal year.