Money manager Franklin Resources Inc, which runs the Franklin and Templeton funds, said Friday its quarterly profit grew 7 percent, beating analysts' expectations even as additional investments from customers slowed to a trickle.
Net income for Franklin's fiscal first quarter through December 31 totaled $516.1 million, or $2.42 per share, compared with $480.8 million, or $2.20 per share, a year earlier, the San Mateo, California-based firm said.
Analysts had, on average, expected net income of $2.38 per share, according to Thomson Reuters I/B/E/S.
Investors lauded the results, sending shares of Franklin up $2.09, or 1.5 percent, to $138.97 on the New York Stock Exchange. The stock has gained 10 percent so far this year, outperforming a 6 percent advance on the Standard & Poor's 500 Index.
Customers added only about $300 million to Franklin's funds and accounts during the quarter, down considerably from $2.9 billion in the prior three months. But market appreciation and other gains added $24.8 billion, and acquisitions added $8.7 billion. Franklin ended the quarter with total assets under management of $781.8 billion, up 17 percent from a year earlier.
Customer flows slowed across the money management industry in the quarter, amid investor concerns about the extended budget showdown between lawmakers in Washington, D.C. over how to avert automatic spending cuts and tax hikes that were to have kicked in early this year.
Franklin competitor Invesco also saw dramatically reduced inflows while T. Rowe Price Group and Janus Capital Group reported net outflows from customers.
And, like the rest of the industry, Franklin's fortunes improved in January, after the end of the quarter.
Noting that Franklin has typically seen strong inflows in the past in January, Chief Executive Greg Johnson said on a call with analysts: "We expect that to carry through" this year.
Inflows of $6.9 billion into Franklin's fixed income products were nearly offset by outflows of $6.4 billion from equities. Customers also added $500 million to hybrid funds and withdrew $700 million from money market funds.
Strong fund performance should help flows improve for the rest of the year, analysts said.
The performance and broad, global sales network should "increasingly drive consistent market share gains," Michael Kim, an analyst at Sandler O'Neill Partners, wrote in a report after the earnings were announced.
In September, Franklin announced it was buying K2 Advisors, a fund of hedge funds manager. The firm could use K2's capabilities to develop a mutual fund aimed at retail investors, CEO Johnson said.
"That's something we're looking at, certainly," he said.
(Reporting by Aaron Pressman; Editing by Grant McCool and Bernadette Baum)