October 25, 2007 / 1:56 PM / 12 years ago

Franklin shares slide on earnings

BOSTON (Reuters) - Franklin Resources Inc (BEN.N), one of the largest publicly traded U.S. mutual fund companies, reported a weaker-than-expected rise in quarterly profit on Thursday, sending its shares down as much as 5 percent.

The San Mateo, California-based company, which manages the popular Franklin and Templeton mutual funds, said net income rose to $436.9 million, or $1.76 per share, in the fiscal fourth quarter ended September 30, from $381.7 million, or $1.49 a share, a year earlier.

But analysts had expected even stronger earnings of $1.84 per share, according to Reuters Estimates.

The company paid a higher tax rate and spent more on selling its funds, analysts said, explaining the shortfall. Franklin, known for its international funds, said revenue rose 26 percent to $1.63 billion as investment management fees grew 26 percent to $963.3 million.

Assets under management, which helps determine how much money managers earn in fees, grew to $645.9 billion from $511.3 billion.

Franklin reported $9.8 billion in net new sales, including $4.1 billion in international and global funds that have performed better than U.S. funds for some time.

“While stronger than expected flows were a positive surprise, it appears that modestly higher than expected expenses may limit upside to consensus,” Bank of America analyst Michael Hecht wrote.

Analysts had forecast large inflows in these areas as investors searched for safe investments when U.S. stock markets came under pressure amid turmoil in the subprime mortgage market.

But the company’s tax rate rose to 29.5 percent in the quarter from 22.5 percent a year earlier.

Franklin, a long time favorite with investors, has seen its share price rise 31 percent in the last 52 weeks. But it is now considered to be expensive, trading at roughly 19.9 times 2007 earnings, while rival Legg Mason is trading at only 14.9 times expected earnings.

In late trading, Franklin shares were down 3.69 percent, or $5.25, at $136.94.

At the same time, most other asset managers posted gains.

Reporting by Svea Herbst-Bayliss

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