BEN - Earnings call transcript Q2 2019 | Franklin Resources, Inc.

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Unidentified Company Representative

Good morning, and welcome to Franklin Resources Earnings Conference Call for the Quarter Ended March 31, 2019. Statements made in this conference call regarding Franklin Resources Inc., which are not historical facts, are forward-looking statements within the meaning of Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from any future results expressed or implied by such forward-looking statements. These and other risks, uncertainties and other important factors are described in more detail in Franklin's recent filings with the Securities and Exchange Commission, including in the Risk Factors and MD&A sections of Franklin's most recent Form 10-K and 10-Q filings.

Operator

Good morning. and your Jessie operator is name I'll call be today. My Instructions]. [Operator

reminder, Johnson, you As would being recorded. Franklin like conference At is turn CEO, Greg a Mr. and call Resources may begin. this the this Chairman to over Johnson. Mr. to time, I

Gregory Johnson

Good morning, our earnings conference second and quarter welcome call. to

his final for CFO me call as is Ken Joining earnings Lewis.

and We also with us Officer, have Jenny Chief Johnson, today. Operating our President

operational a like improved investment line of Retail efficiencies significantly, flows better income the questions. for Importantly, to strong XX% per sales many organization. our that initial and to flagship translated Higher for share optimization impact redemptions your inflows Franklin last the the increase income investment quarter. fixed more cost open than from increase funds. attracted as initiatives particularly of the and global We'd from streamline to improved again income. performance once now $X.XX, did offset structure to intended Earnings

Operator

[Operator Instructions].

the Glenn from is question line Evercore first Schorr ISI. of Our with

Glenn Schorr

I'm coming redemptions we're since curious the behind the fourth and Obviously better you lowest what market got a to XXXX. crap quarter. what's off think see

on lowest Your since things in bring that be better. retail of XXXX, the lot channel? interesting are performance But versus to I'm anything There is there. Franklin-specific. environmental to, obviously, is a how curious And doing much level you on in

Gregory Johnson

redemptions of off had funds coming better in focus does we've mind. it than better has the some quarter, partly certainly, to I'm slow activity. volatile else think then larger But, as past. sure where pickup the that helped And performance, a I We've comes well. flagship and had redemption I seen sometimes think, on and Well, performance the other down nothing

Jennifer Johnson

had that private in and channels, gatekeepers seen and SMA the wealth add think Stock just additional distribution recently, channels. in adding on we've investments hires placements the talent most I'll the Exchange and upticks our channel we've things to some York with the of New made some and And I

that probably think also I helping. So that's

Glenn Schorr

that seen went we have consolidations the the around list on And retail a channel? slowing in

Jennifer Johnson

some still -- in in of is obviously, some are seeing it, mean, we're You're rationalizing that. also, cases, winning those but I channels. firms

Glenn Schorr

okay. you. ground on on door? just I going overall Street, running? I on but the know -- there on curious follow-up, you're other not out could just if we're the What's Got can Benefit driving so start and closed behind-the-scenes one the hit And yet plan once what's growth to

Gregory Johnson

way. at and get -- on we're process Well, now and mean, I the optimal our investment think first, early they've the go on early to the the stage, in with tackle. expanding looking to done, to been then And really up get entire We're of Benefit and speed that's sure is But the introduce some to, and clients an that many there. products globe also is then team I Benefit equation roadshows but retail making with and Street around the Street focus say, our the really team distribution months, clients. of Benefit part global really comfortable developing our plan -- the attacking it's our out Street in still I'd has going what

Operator

question Citigroup. the next Bill from with of Our is Katz line

Benjamin Herbert

bend the is versus lower Or 'XX? bit able for on on 'XX And bit it's you further? to commentary wanted Are expense be Ben maybe it pushed 'XX. potential Herbert Bill. out little to a just to expecting follow-up the a I that still than

Gregory Johnson

Bill. Thanks,

that get now. rate of can the we be right we're the that the levels. confident run pretty expenses we're XXXX at all to result initiatives That's as guidance, Our a cost-savings doing

Benjamin Herbert

be may touch? 'XX little lower just a or we're expecting in bit not a to so And come in

Gregory Johnson

level. XXXX expect yes. sorry, the XXXX in I'm expenses be -- 'XX, In we XXXX, 'XX at In to

Benjamin Herbert

opportunity any come bit But a to lower? in Great.

Gregory Johnson

Yes. Hopefully. on Working it.

Benjamin Herbert

maybe priorities management with unrelated then CFO the one be And change? capital would in follow-up change any just

Gregory Johnson

No.

the the Board all nothing we input the around at speak strategy think to new optimizing with that, really capital about. this management you'll worked stage to I but on have and a certainly,

Operator

Bank. line next the question of Our Brian from Bedell is with Deutsche

Brian Bedell

Maybe, Greg, on to active supposed beta Maybe your whether whether you'd shares active? active potentially license -- fit of a the smart little beta the with space? would And in and something nontransparent that, approval then the effort can interested of your talk has about with been for ETF, I your effort would you that how some bit any be strategies? in liberty you think, right to pass it's say, that views now your acquisitions, the smart ETF -- also the look accelerating

Gregory Johnson

to that Share will over I turn Board who Jenny, Liberty is a Well, Member.

Jennifer Johnson

pay limited isn't most attention various obviously that the coming trusts really the approval close that Presidian, it's in are blind to SEC. the with U.S.-listed equities. through We the recent And it's

So that ones -- and talking replaced. you're can be about

and mid- be to tended it's large-cap. So

that space, product So think we would that consider we sense, active have an makes we if certainly in it. that

are have active blind need that kind income We fixed of that very don't they well, and trust. performing

the this just -- open And we $X good liberty is scale, one seeing in attracts had just we're of is to shares our key at volatile beta that now so institutional with is just some and quarter, our equity well We're of looking now, that very depends. growth billion ETF U.S. $X.X and this performed ETF it about hit we're right smart And them. market. our one through ETFs billion. things with more And which all to of FLQL, -- players

Gregory Johnson

see M&A, certainly we're the as we've and potentially And I offerings well. complements I always would ETF in and as that, things, we just still our that at looking said something accelerates if think,

Brian Bedell

lead think sort types M&A you basis? then on, that scale Do industry sense -- think and theme. Obviously, successful more rekindling close one. might in on ends on terms to -- the make up Great. Europe that these fairly And to of And of the would obviously is thoughts on of in cost of I maybe more deal about that Okay. If Invesco-Oppenheimer maybe it is organic just think, the sort potentially sizable just spur that? that you a potential for and being getting properties? consolidation saves. potentially you would updated had Any updated you even some in of thoughts any to for agreements on past mentioned distribution consolidate a calls. sort And a growth

Gregory Johnson

and of another way pointed than But other cost think there strong challenged that and I Yes, not be we certainly right think have opportunity disruptive environment. opportunity the to certainly, But take that I when is challenge right savings don't just it's on. has there. well and just in culture I to there -- certainly, it's revenue we mean, looking open difficult. reduce complement, executed other if we and think, we on I entities is how right size. firm, That's And at combine ways a to to can have would margins if be for something I huge that. synergies every a it and that fit or to a opinion that pointed one that expenses

that, doing plays past certain in but we continue new add it think and new maybe, The I can there. something that as on to is markets we're nothing distribution will there on have and that's Jenny and new certainly much really at looking to say M&A., but is there said open other I to look, to calls, think don't report, -- more

Operator

Bank Our line Michael question Merrill with of the next Lynch. from is Carrier of America

Michael Carrier

those you're terms on I then First where a provide are in distribution, priorities? have just on pursuing those some two of those? of those any efficiency next but savings, but specifically, And talked about outsourcing, redirecting -- initiatives. what you years, the little either need other some the of detail over multi-asset guys just efficiencies, Can the You you're mentioned you areas? getting as solutions,

Gregory Johnson

It start effort. with a I'll is savings. the Okay. enterprise-wide cost

participated units So essentially, all in it. the business

out it's outsourcing announcement And the So early the I point in is just stages. will difficult. that

So every just on year all initiatives the to be jurisdictions not to eliminate company it. doing maybe But we're their to and in the that to efficient. we're ways the a and -- Maybe looking there's XXXX. the on it's that operations going department in text and -- become cost-savings more processes this to that call the leverage in more just referring relate cost to in XX low come -- the at finding or

invest So to it's And going the enterprise-wide. on? What money we're want? you

Jennifer Johnson

Yes. Sure. it's two distribution, solutions and multi-asset distribution in both big are No, that, in obviously, areas. in people. And

the channels through of so course, to So talent as to own. smarter that have insights. side. developing at data over management in We machine we've -- our distribution support on managers AI leverage technologies very of channels to on to it's we're as that supports long it's we investment think gain that areas distribution whether science. that's the ability or need the partnering some technology, providing the need but be course, and products Data learning run. the our important and, then, data nascent, added science distribution be And right important. science We key believe really capabilities that active and And the could well important

And so developing capabilities around that is critical.

Michael Carrier

then follow to on And the flows. just up sort Okay. of

good the some pockets had and global in improvement. Greg, mentioned you of international guys retail. You bond

it headwind. institutional that be side, continues bit a So on seems a of the to

outlook there I but quarter impacted that color little some think on items that just channel. mentioned what you, seeing the the in during you're maybe you just then and

Gregory Johnson

another think, I where -- correct historically value cycle, you're trailed we And side of XXth, that helped redemptions certainly quarter, that of growth have -- and the still numbers that's the as enter new assets on rebounded, the we by to just our in you think saying institutional this sales Templeton support they over have and there. so majority basis I not -- some year the I relative it's XXth points that. had been our think on about XXX Yes, hasn't continuing. markets pressure headwinds there's and as -- have the And

that. the of as quarter they've a redemptions large other of vol and indexing. number of the lot of a going for we that type business represented another of or So coming and the of as looking been that's low just passive, whether seen gotten that go a And well have well variable some fund business next We've that'd probably We billion or saw quarter. that's are past it's headwind. equity as out a be lot it's managers annuity, some accounts $X continued where global some it's a

to lower they're the net larger cost or So positive side we some fund funds. wasn't would just retail The been see for that continue, those on the of if good two pressure overall, is news And institutional accounts or have in about separate breakeven I where are the redemptions. the think, -- numbers. put it

Operator

line question Morgan. from Our of a JP next of is Worthington the Ken

William Cuddy

Cuddy Will for is This filling Ken. in

the over perspective First, your years. Ken, for thank you perspective --

Franklin questions. we flows been from to RIA those RIAs Could us on within please advisory? and coming how Are retail, those you adviser off? pay are in beginning channels it's progress Turning distribution. the update And has your see much investing investments to your in on and retail investments? of

Jennifer Johnson

this We lot uptick see a is We to U.S. actually are able to of quarter, off. market. focused distribution it smaller growing. attack to good that but a ways had part very our it beginning we're retail there's and of a different pay be much on that one And still

for market. We will multi-asset launched has to be models have a that think that appealing solutions we

some be have into come in to be open-architecture use RIAs look more tools the incorporated that independent models. that of can they We they investments at also because strategic in with technology tend that use. We sleeves of up more

we we those content. whether strategic so models applications through whether our and investments own support or And do

the ETFs. ETFs all as very space the we getting RIA channel. the important Obviously, RIA of ETF are definitely us good it So see the to a They forward. in focus going for tend on like those We're traction some focused strategic on channel. things but

William Cuddy

Great.

lower on we're There reform the income. Turning commentary MENA of seen tax tax prefixed about for change tax to bonds? behavior on reform in tax you the fixed broker result this Either And income a you a of impacted sales? more the off a some of market. season. of and tax the seen has season refunds as Have changes and recently, in speculation year rate tax coming in broadly. been Have

Gregory Johnson

in it mean, and I quarter I which while. hasn't tax-free for been inflow, us, a positive it a a flows Yes. just in stronger would say general, for was

So that was good.

tax -- taxes think those that have state tax has on of aware states and rate our no the and becomes performance everybody the top especially done Cal I the double tax-free more pretty attractive that. very longer well in of deduction, in -- the is

difference will that that improved their the things make had to and So state clearly that not deduction. pay sales hopefully, having I think and the more taxes flows as people up area up continue it's to gross of an estimated and have

Operator

the Research. question next Our line is of Autonomous Davitt with from Patrick

Patrick Davitt

make about On the to guidance, want expense thinking I'm I sure just it right.

kept the XXXX flat excluding guide guide So with you basically XXXX, the Benefit -- Street.

XX% the XX% to through as -- that XXXX Street comp Yes? me? And pardon is well? lens, guidance So excluding that Benefit was

Gregory Johnson

I'm didn't I there. the you I hear cut sorry. sentence. off

Patrick Davitt

ahead. Go

Gregory Johnson

Benefit It includes Street, Benefit but... Street. year This includes

Patrick Davitt

guess I item? the vast of much be up Right. of majority Could It sorry? kind vast There's it would severance-type majority Do you without basically Okay. would or -- of that it guidance still -- suggest the how kind severance. just -- separate out the onetime

Gregory Johnson

it right, is severance. You're

about related the of execution X% is all cost a give cost can cost for to other costs, increase are. it's we X% the initiatives. increase. We savings think I you perhaps think for this we execution the what range think

Patrick Davitt

Including severance?

Gregory Johnson

Yes.

Patrick Davitt

On add to on you did have of they $XX of performance your cool. And Street the views at -- Benefit Was million accretion all? they again. from -- deal? any timing the fee Okay. were do updates potential

Gregory Johnson

minimal year going it I we think do. are inclusive Performance still -- projections neutral. as it's of fees this in I and in Benefit confident was quarter. total our we this that Street And pretty said, to be were

Next the that. after result, and slightly revenue accretive accretive as growth a year then

Patrick Davitt

update numbers the in on Great. noncash And any deal? expense from potential that's that

Gregory Johnson

and cash you of see Yes. though couple much could The things. Benefit to related down cash this But... pretty quarter, it's -- other the went Street a

Patrick Davitt

like meant noncash... I No.

Gregory Johnson

and of that. price other price We cash the purchase closed just

Operator

Our is Robert with from of line question KBW. Lee next the

Robert Lee

chapter. And Ken, next your best luck of in

Kenneth Lewis

Thanks.

Robert Lee

total Could your you spend? answer Patrick's excluding Did to Patrick's you expense, just go maybe back to in sales X% the X% on -- increase. question increase mean

Kenneth Lewis

I'll more. Yes. even that simplify

million this estimate and Our $XX between $XX remainder costs. year of between $XX is -- like execution million the fiscal for of million

Robert Lee

obviously that includes severance And whatnot? Great. then and

Gregory Johnson

That's Exactly. right. That's right.

Robert Lee

in kind is big past, couple color the U.S. Perfect. the traction. get was for on global years it where outside in a best in trying demand the I'm the Maybe U.S. for I that. seeing is just concentrated example, you -- and gears. fixed seeing of are particular, seeing you've it for Are places? using of spread Italy, market outside you. it shifting Right. know some relatively some to kind out? okay. a curious and, just in Just rebound curious Are of to in good the I'm U.S. that of both you're

Gregory Johnson

just even investors there. or -- just in lot Asia return just I from right there's And can of think, spent of we're the I a Hong rebound, sales having Kong, duration-related. from fear traveling in I December. through And most sales this Asia. are the fund And and look around. coming risk in had gone back Yes. a the home fund. seeing office with December, for and retail And part type it of people yesterday we lower of Europe on. just a putting alternatives a just that interest the But it secondarily. not particular, I actually the days before, a returned out now in is in looking And overall nine that positive highlighted the are and -- you lot of as the in at And we're caution portfolio beta- global think and renewed of which, actually rebound growth and from as these really Singapore, seeing said how platform if bond retail driven

optimistic as renewed markets interest will just as had well. that and we strong new very reach that, there So highs continue a

more and U.S. Asia, been then the really then it's Europe So

Robert Lee

last like the one maybe going question. back then And - it's Okay.

excess and and change capital lowest share if But quarter. having otherwise? the Is to while level think you're from apologize versus you impacting levels has you back it. hand Benefit and background this kind willing -- extent but don't as used you who maybe to those, what understanding but someone you know cash earlier, a that in Street Going see had that? may take done you investment It's it I'm the you've in I repurchases, come want keep you if how CFO to much trying the addressed I'm of returned your just with what I of to had I to into that have reading get to and that just the it, management about down on cash trying on clearly M&A. prefer all at levels. too did been -- it mean,

Gregory Johnson

a I has said buybacks. in before, the with change think, that Yes. don't to CFO the lot as whole do the I

you choppy really acquisition. stock you was at been the very the and period. pretty lower I aggressive we and also back had to time. a through any want opportunistic, think period level December you're we've redemptions set given in volume the if And buying there you And in had don't that -- much in

don't cash and we're to of balance Like look going we think But a then we the be think So can indicate that in we it up other be little back at, to use to and the forward to things think the have, the a time. us just as to lot don't opportunistic provides going continue and whether we're And think with value continue as should well or options. stock I add alternatives it's bit. than shareholder sheet going market before, we other said over any

Kenneth Lewis

than this versus XX(b)-XX market more for XX% last there are volume our And example, quarter. quarter, issues too. dropped Like,

issues execution those as -- there's So well.

Operator

the Our Sachs. Alex with next is Blostein Goldman of from question line

Alexander Blostein

-- around expenses. A one question another around

through admin fund products business. will and Who So outsourcing a to the not percentage And highlighted Can of decision time? or whether outsourced? guys you the there's marks, guys you be regional be an opportunity guess, going you to? more AUM what to in us are walk of the outsource portion what I then outsource to over

Gregory Johnson

not outsourcing at -- the basis. basis. a looking don't on I decision product at It's we're we look more don't a process -- the of

I one in think, part kind decision we're about our The and think to specifically, a they've meet it. brings line efficient our can so the on And I unique capabilities. to process. that's that's wasn't changed things case feel, And is it basis outsource, the aspects reached for that, a advance of our of scale more effort accounting, I the a fund reporting And before. they talking of broader where and peers. it's fund guess providers of that we with global cost needs the

Kenneth Lewis

cover would most it And funds, of would guess. our I

Gregory Johnson

covers it exactly. specific. It's yes. -- funds the products It's not Yes, processed. the across all

Alexander Blostein

Got it.

I expense net being ongoing we kind think cost on initiatives about guess when that sounds the guys and initiatives business organic side? once growth cost up you in cost-cutting And get time. and program, like How but the of beyond But, for guidance the the the account taking growth XXXX, initiatives through you clear. guys you and look have fairly the these I over kind the of is both might have should guess, out Okay. side you end it place

Kenneth Lewis

of One -- in think it's the thing frontloading is invest Jenny there that initiatives I to important was to some continue will continue that to last out mentioned, year. we we while strategic point

year. last made we investments Some

of base and And the so of expenses as you there an that if you in were were expense of that. backfilling rails kind globalizing kind or did the see increase

to make investments. continue we'll So those

more process scalable. this that that more efficient going think through us we're and I makes

seen certain might growth the as a we normally, business grows. have rate So

the grows. I increasing we're scale. that rate in think of see because we'll our of -- the growth don't as think business certain expenses our future I

will think to it we keep good So inflation a under about is guideline that. but growth, try think to I expense

Operator

Research. follow-up Patrick Autonomous a question of the line have Davitt with do from We

Patrick Davitt

what billion saw scale from to remind Could last much You coming you mentioned in VA. the that $X you quarter that and left bucket? how us out relative is

Gregory Johnson

that and probably have don't in back I this well similar -- can another quarter billion we'll identified quarter. just where to as we've $X out because -- on of but beyond It's $X.X billion for I -- -- that this go any put And next older nothing we But billion of. you the nothing, I next think, as about quarter I assets there's quarter could had get far that are change, they risk assets the at just aware quarter the are visibility -- we $X that as that. at the

Operator

Our next Dan of the with question line is Fannon from Jeffries.

James Steele

in actually for is Dan. This filling James Steele

Sorry.

cost this on Is of more associated fund the administration. to just it? of any of different one entail outsourcing a ongoing admin sort of outside funds the sort Just onetime cost with going the

Jennifer Johnson

of a ask just things. I'll -- answer couple

be I think to no, you reduction, but will see dramatic a fund's the reductions that, some expenses. there wouldn't

of savings just it is global individual the And funds. some is be to that that the as do to had historically, it. as had reasons to didn't have it's And providers footprint mentioned, there as we if So the much a one Ken that the we anything, able risk. just in-house

cost for can to they it's us, continue And are a Now scale can level. they that a risk have able our to invest they and in meet technology. as mitigation the as much also

James Steele

size And the -- could you if is you all-in fund the expense? Okay. in -- difference there

Jennifer Johnson

I mean, it's...

Gregory Johnson

just me on a on It's more be this say come -- is is of let -- announcement next there'll it this Yes, to kind early this. pretty year. that

of of will so us beginning XXXX. into -- will us the And take the even take execution execution it the

XX-year a really on benefit analysis that. it's so And cost

to be on there'll more So the come that future. in

Operator

further we any pass It like Johnson no the floor to so at I'd for concluding time, have additional questions to back over Mr. appears this comments.

Gregory Johnson

Ken him Lewis want us will for his over I just career. tremendous attending to Well, the I thank transition our He us. but to still want thank with you and on of much, through thank to service all very here, behalf organization of for everyone, his be

Kenneth Lewis

Greg. Thanks. Thanks,

years calls and XX XX Just here. been a so over few Yes, it's words. over earnings

I'll a try said, a felt has be has little feel March a good I including make The next the good I stay to -- say before Bay in March Executive you I in the capacity September the and like we team know felt I'm will until do R&R confident in to you can times advisory like opportunity. Greg change XX. the want Area, opportunities very XX-year here of guess. hands. shortage But and no as successful. leave There's to sure As

for One you those will over reason for of thought-provoking know them. your to values I and of serve thank miss the questions that past is challenge. sure worked I culture long so that honest -- XX honesty and they'll want company's And thoughtful the of -- quarterly I deep integrity. I'm I'll years. all the

So I we the across hope pass all future. in

a thanks So everyone. lot

Operator

Ladies this time. you today's teleconference. we your you and disconnect thank for may and Again, participation, gentlemen, does conclude your this lines at

Franklin Resources (BEN) 26 Apr 192019 Q2 Earnings call transcript