Q1 2025 Earnings Summary
- Franklin Templeton expects to achieve $200 million to $250 million in expense reductions by fiscal 2026, leading to margin expansion. This is incremental to their flat expense guidance for fiscal 2025.
- The acquisition of Putnam has been a "home run," with net new flows of approximately $12 to $15 billion since closing, exceeding expectations and contributing positively to operating income.
- Significant growth in alternative investments, especially in the wealth channel, with plans to increase wealth clients to represent 20% to 30% of alternative capital raises. Recent capital raises include $900 million in January for a perpetual secondary fund.
- Significant outflows at Western Asset Management of approximately $120 billion from August to January, equating to about 30% of Western's full-year 2024 adjusted revenue and 3% of Franklin's, which may negatively impact overall revenue and operating income.
- Operating income impact from Western's outflows will be greater than the revenue impact, as expenses need to catch up with revenue declines, leading to short-term margin compression before expense reductions take effect.
- Expense reductions of $200 million to $250 million are not expected to be fully realized until fiscal 2026, indicating that margins may remain under pressure in the near term.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +13% | Increased primarily due to higher investment management fees and sales & distribution fees, partly driven by new product launches and market appreciation, offset slightly by net outflows at Western Asset. |
Investment Management Fees | +9% | Grew on account of net market appreciation and steady AUM growth, partially offset by lower performance fees and continuing net outflows in certain product lines. |
Sales & Distribution Fees | +27% | Benefited from stronger commissionable sales and expanded distribution via newly acquired and existing channels, enhancing fee income relative to the prior period. |
Shareholder Servicing Fees | +95% | Surged due to the integration of acquired products (e.g., Putnam) and increased servicing activities, which drove higher fees relative to the smaller base in the previous year. |
Other | +33% | Rose on higher miscellaneous revenues and minor transaction-related fees, reflecting incremental contributions compared to the prior period. |
Operating Income (EBIT) | +6% | Improved due to revenue growth outpacing expense increases, though amortization of intangible assets and increased operating costs moderated gains compared to last year. |
Net Income | -35% | Declined because of impairment charges and higher operating expenses, overwhelming the benefits from increased revenues, particularly impacting profitability relative to the prior period. |
EPS (Basic & Diluted) | -42% | Weakened mainly on the net income decline and a modest share count effect, resulting in a larger percentage drop in EPS than in revenue despite some share repurchases. |
Share Repurchases | -90% | Lower repurchases reflect capital allocation priorities shifted toward acquisitions, organic investments, and liquidity needs, leading to significantly fewer shares repurchased. |
Cash and Cash Equivalents | +56% | Increased as management enhanced liquidity through net proceeds from investment activities and selective financing moves, contrasting with lower consolidated investment product outlays from the prior period. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Tax Rate | FY 2025 | 24% to 26% | 25% to 27% | raised |
Expenses | FY 2025 | no prior guidance | flat compared to FY 2024, excluding performance fees | no prior guidance |
Expense reductions | FY 2026 | no prior guidance | $200M–$250M on a run-rate basis starting FY 2026 | no prior guidance |
Effective fee rate | FY 2025 | no prior guidance | expected to increase from low 37 bps to mid–high 37 bps | no prior guidance |