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Why Franklin Resources Stock Got Crushed Today

By Evan Niu, CFA – Updated Oct 27, 2020 at 1:50PM

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The Franklin Templeton parent reports disappointing results after closing its acquisition of Legg Mason.

What happened

Shares of Franklin Resources (BEN -1.27%) have gotten crushed today, down by 11% as of 12:50 p.m. EDT, after the company reported disappointing preliminary fiscal fourth-quarter earnings results. The Franklin Templeton parent company acquired Legg Mason during the quarter in its biggest acquisition to date.

So what

Revenue in the fiscal fourth quarter was $1.7 billion, ahead of the $1.5 billion in sales that the Street was expecting. That resulted in adjusted earnings per share of $0.56, which was worse than the $0.68 per share in adjusted profits forecast by the model used by analysts. Assets under management (AUM) jumped to $1.42 trillion at the end of the quarter due in large part to the acquisition.

Red stock chart with white arrow going down.

Image source: Getty Images.

In a statement, CEO Jenny Johnson said:

While fiscal 2020 presented many challenges to the economy, our industry, and our business, it was also marked by exciting new opportunities for the firm. Of course, the most significant of those being the acquisition of Legg Mason and its specialist investment managers ("SIMs"). In a single transaction, we acquired multiple companies that brought strategically important investment capabilities to Franklin Templeton, while maintaining a strong balance sheet.

Now what

The merger more than tripled Franklin's fixed income AUM, which now stands at over $650 million. The combined financial-services company is now the sixth largest independent asset manager in the world and is better positioned for international growth.

Johnson added that the client response to the deal has been very positive thus far, giving customers a greater array of investment choices.

Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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