The Wall Street Journal-20080125-Janus- Franklin Offer Hope on Fund Firms- Bellwethers- Results Surpass Forecasts- Federated Net Slips
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Janus, Franklin Offer Hope on Fund Firms; Bellwethers' Results Surpass Forecasts; Federated Net Slips
Closely watched mutual-fund firms Janus Capital Group Inc. and Franklin Resources Inc. logged results that topped forecasts.
The industry bellwethers -- Janus for growth strategies and Franklin for its international funds -- are the first big mutual-fund firms to report quarterly results, which come at a time of increasing market volatility and economic uncertainty.
"Clearly this is a challenging market, and earnings for asset managers will be under pressure," said D.J. Neiman, an analyst at William Blair & Co. "The question is how profit margins will hold up. Franklin's margins appear to be holding up, while Janus's margins fell a bit from the past two quarters, but are still up from last year."
Indeed, Federated Investors Inc., another large money manager, posted weaker-than-expected results after markets closed yesterday.
Franklin's quarterly net income jumped 21%. As for Janus, Wall Street analysts following the Denver-based company said it had a "noisy" fourth quarter, but its adjusted results topped consensus forecasts by a penny, even though its net tumbled 78%.
Janus posted fourth-quarter net income of $29.7 million, or 17 cents a share, down from 19 cents a share the previous year. The money manager saw $311.5 million of revenue for the quarter ended Dec. 31, compared with $241.2 million a year earlier.
Total assets under management at Dec. 31 were $206.7 billion, compared with $208 billion at Sept. 30. The decrease reflected long- term net inflows of $3.2 billion, money-market net outflows of $5.7 billion and $1.2 billion in fund performance.
"The upside reflected stronger-than-expected top-line results offset by a below-forecasted operating margin," wrote analysts at Goldman Sachs in a report yesterday morning.
The analysts pointed to sharp outflows in money-market funds but added that flows at Janus' well-regarded Intech unit improved during the quarter. The Intech unit, or Enhanced Investment Technologies LLC, is a subsidiary that manages funds using quantitative strategies in an effort to beat market benchmarks.
"This quarter should be good enough, given the recent pullback in Janus shares," Goldman Sachs said. The stock was off more than 20% heading into yesterday's session.
"However, asset managers' fundamentals are under pressure, particularly those with high retail exposure [such as Janus] in the first quarter amid market volatility, and the quality of the upside was low" with a sharp downtick in margin, the analysts wrote.
Shares of Janus rose $2.27, or 9%, to $27.76, in New York Stock Exchange trading.
Shares of Franklin, best known for the performance of its international stock funds, also traded higher in the wake of the company's earnings report.
The stock rose $4.89, or 5.20%, to $98.90 on the NYSE.
The San Mateo, Calif., investment firm said fiscal-first-quarter net income rose $2.12 a share, easily beating Wall Street's consensus estimate of profit of $1.90 a share.
Total assets under management fell to $643.7 billion, from $645.9 billion as of Sept. 30, but rose from $552.9 billion a year earlier. The company, which manages Templeton funds, also said it plans to buy back 10 million shares.
Federated Investors said fourth-quarter net income fell 1% to $52.7 million, from $53.3 million a year earlier. Per-share earnings rose to 52 cents a share, from 51 cents a share. The company's shares declined $1.08, or 2.4%, to $43.31 on the NYSE.
The Pittsburgh money manager said results include charges totaling about 10 cents a share for compensation expenses related to new employment agreements and to a write-down on the firm's investment in a collateralized debt obligation.
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Shirleen Dorman contributed to this article.
