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FRANKLIN RESOURCES INC (BEN)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 FY25 GAAP diluted EPS was $0.26 and adjusted diluted EPS was $0.47, essentially in line with Wall Street consensus, while operating revenues of $2.11B missed expectations due to Western Asset outflows and softer markets . EPS consensus for Q2 was ~$0.473 and revenue consensus was ~$2.441B; actuals were $0.47 and $2.111B, respectively, marking a significant revenue miss and an in-line EPS print*.
  • Long-term net outflows were $26.2B; excluding Western Asset, the firm achieved $7.4B of long‑term net inflows, with multi‑asset and alternatives delivering a combined $9.7B in positive net flows .
  • Management highlighted ongoing expense discipline and guided Q3 FY25 effective fee rate to ~38 bps, with comp & benefits ~$810M, IS&T ~$155M, occupancy ~$70M, and G&A ~$185M; FY25 adjusted expenses expected roughly flat vs FY24 and FY26 run‑rate cost saves of $200–$250M reiterated .
  • Strategic growth vectors remained intact: ETFs posted their 14th consecutive quarter of positive net flows (+$4.1B) and alternatives fundraising reached $6.8B in the quarter; institutional pipeline rose to $20.4B, the highest since 2022 .

What Went Well and What Went Wrong

What Went Well

  • Alternatives and multi-asset momentum: “Fundraising in alternatives generated $6.8 billion for the quarter… Designed for wealth channel clients, these funds raised $2 billion in AUM” . Multi‑asset and alternatives combined delivered $9.7B in net inflows .
  • ETF strength and product innovation: “Our ETF business saw its 14th consecutive quarter of positive net flows, attracting $4.1 billion with a record high in assets under management” . Launch of Franklin Crypto Index ETF and tokenized UCITS fund expanded digital asset offerings .
  • Institutional pipeline: “Our institutional pipeline of won‑but‑unfunded mandates rose by $2.3 billion to $20.4 billion – its highest level since 2022” .

What Went Wrong

  • Western Asset drag and net outflows: Long‑term net outflows totaled $26.2B, inclusive of $33.6B from Western; markets were a further $11.6B negative, driving ending AUM down to $1.5406T (−2% q/q, −6% y/y) .
  • Margin compression and sequential declines: Operating margin fell to 6.9% (from 9.7% in Q1), adjusted operating income declined to $377.2M (−9% q/q), and adjusted diluted EPS fell to $0.47 (−20% q/q) .
  • Non‑GAAP adjustment headwind: Adjusted net income includes a $41.4M loss (−$0.06 per diluted share) on a renewable energy seed investment associated with a closed fund, pressuring non‑GAAP EPS .

Financial Results

MetricQ2 2024 (31-Mar-24)Q4 2024 (30-Sep-24)Q1 2025 (31-Dec-24)Q2 2025 (31-Mar-25)
Operating Revenues ($USD Millions)$2,152.8 $2,211.2 $2,251.6 $2,111.4
Operating Income ($USD Millions)$129.3 $(150.7) $219.0 $145.6
Operating Margin (%)6.0% (6.8)% 9.7% 6.9%
Net Income Attributable ($USD Millions)$124.2 $(84.7) $163.6 $151.4
Diluted EPS ($USD)$0.23 $(0.19) $0.29 $0.26
Adjusted Operating Income ($USD Millions)$419.6 —$412.8 $377.2
Adjusted Operating Margin (%)25.2% —24.5% 23.4%
Adjusted Net Income ($USD Millions)$306.6 —$320.5 $254.4
Adjusted Diluted EPS ($USD)$0.56 —$0.59 $0.47

Segment/AUM breakdown:

AUM by Asset Class ($USD Billions)31-Mar-2430-Sep-2431-Dec-2431-Mar-25
Equity$592.7 $632.1 $620.0 $598.1
Fixed Income$571.4 $556.4 $469.5 $446.0
Alternative$255.5 $249.9 $248.8 $251.8
Multi‑Asset$163.4 $176.2 $174.0 $175.8
Cash Management$61.7 $64.0 $63.4 $68.9
Total AUM$1,644.7 $1,678.6 $1,575.7 $1,540.6

KPIs:

KPIQ1 2025Q2 2025
Ending AUM ($USD Billions)$1,575.7 $1,540.6
Average AUM ($USD Billions)$1,634.5 $1,570.5
Long‑Term Net Flows ($USD Billions)$(50.0) $(26.2)
ETF Net Flows ($USD Billions)$2.7 $4.1
Alternatives Fundraising ($USD Billions)$6.0 $6.8
Institutional Pipeline (won‑but‑unfunded, $USD Billions)$18.1 $20.4

Additional AUM disclosures (April/quarter updates):

  • Preliminary month‑end AUM was $1.5348T at Apr 30, 2025 (vs $1.5406T at Mar 31), reflecting ~$10B long‑term net outflows at Western; ex‑Western long‑term net inflows were flat .
  • March 31 preliminary update noted quarterly long‑term net outflows of $26B inclusive of $34B at Western, with ex‑Western preliminary long‑term net inflows of $8B .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Effective Fee Rate (EFR)Q2 FY25 (given on Q1 call)Mid‑ to high‑37 bps Q3 FY25: ~38 bps Raised
Compensation & BenefitsQ2 FY25$815–$820M (assumes ~$50M perf fees) Q3 FY25: ~$810M (assumes ~$50M perf fees) Lowered
IS&T ExpenseQ2 FY25~$150M Q3 FY25: ~$155M (overlap vendor +$3M) Slightly Raised
OccupancyQ2 FY25$70–$75M Q3 FY25: ~$70M (double rent taper) Slightly Lower/Maintained
G&AQ2 FY25~$190M (higher advertising/legal) Q3 FY25: ~$185M Lowered
GAAP Tax RateFY2525–27% 25–27% (unchanged) Maintained
Adjusted Expenses vs FY24FY25Similar to FY24 (normalized; ex perf fees) Roughly flat to FY24 Maintained
Run‑Rate Cost SavesFY26$200–$250M exit run‑rate targeted $200–$250M reiterated entering FY26 Maintained
DividendQ2 FY25$0.31 per share prior year quarter $0.32 per share declared; payable Jul 11, 2025 Raised vs PY; Maintained q/q

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 FY24, Q1 FY25)Current Period (Q2 FY25)Trend
Alternatives fundraising & wealth channelFY24: $14.8B private markets; target $100B over 5 years; wealth channel build‑out $6.8B raised; $6.1B private markets; launch of perpetual secondaries funds (Flex/Flex I) and >$2B raised across channels Improving
ETFs growth13th consecutive quarter +$2.7B; AUM $31B 14th consecutive quarter +$4.1B; record AUM $37B Improving
International/regional momentumFY24 international AUM >$500B; broad global footprint Non‑U.S. business saw positive net flows in EMEA and Americas; ~$470B AUM Stable to Improving
Western Asset statusFY24: investigation; Q4 outflows $37B; plans to integrate select functions Q2: $33.6B long‑term net outflows at Western; performance good; April preliminary −$10B Western outflows; integration progressing Deteriorating (flows), Stable (ops)
Expense discipline/cost savesFY25 guidance flat expenses; FY26 $200–$250M saves Q3 guidance detailed; FY25 flat reiterated; FY26 $200–$250M re‑affirmed Stable
Digital assets/technologyAI partnership with Microsoft; Crypto ETFs launched Crypto Index ETF; Europe’s first tokenized UCITS fund (On‑Chain U.S. Govt money fund) Expanding
Macro/tariffs/supply chainCautious on tariffs and global growth; fixed income opportunities Heightened uncertainty from tariffs; equity breadth beyond “Magnificent Seven”; expect one Fed cut Persistent headwinds

Management Commentary

  • “Long‑term inflows increased by 9% quarter‑over‑quarter (excluding reinvested distributions), and multi‑asset and alternatives generated a combined $9.7 billion in positive net flows.” – Jennifer Johnson, President & CEO .
  • “Our ETF business saw its 14th consecutive quarter of positive net flows, attracting $4.1 billion with a record high in assets under management.” – Jennifer Johnson .
  • “We continue to focus on sound expense discipline and operational efficiencies, including the recent integration of Western’s select corporate functions into Franklin Templeton.” – Jennifer Johnson .
  • “We expect our effective fee rate for the third quarter to remain in the 38 basis point area… comp and benefits to around $810 million… IS&T to be $155 million… occupancy around $70 million… G&A around $185 million.” – Matthew Nicholls, CFO & COO .

Q&A Highlights

  • Expense architecture and guidance: CFO detailed Q3 guardrails (EFR ~38 bps; C&B ~$810M; IS&T ~$155M; occupancy ~$70M; G&A ~$185M) and reiterated FY25 flat expenses and FY26 $200–$250M run‑rate cost saves .
  • Ex‑Western flows resilience: Management noted ex‑Western fixed income net inflows and “flattish” April ex‑Western flows despite volatility, highlighting diversified growth engines (ETFs, SMAs, alternatives) .
  • Private markets traction: Alternatives by Franklin Templeton is scaling perpetual vehicles (> $1B each in secondaries, real estate debt, real estate equity); Lexington’s flagship timing likely later in 2025/early 2026, with strong opportunity set in secondaries .
  • Fixed income mix and Western update: Franklin fixed income, munis, stable value, high yield, CLOs and short duration strategies saw good demand; Western remains engaged with clients, with ~$10B April net outflows balanced by ~$5B gross sales .
  • Insurance channel partnership: Putnam partnership with Great‑West continues to scale; of initial $25B commitment, ~$21–$22B funded, with broader insurance mandates consolidating toward fewer managers, benefitting Franklin’s breadth .

Estimates Context

MetricQ2 2025 ConsensusQ2 2025 Actual
Primary EPS ($)$0.473*$0.47
Revenue ($USD Billions)$2.441*$2.111
EBITDA ($USD Millions)$416.1*$353.7 [functions.GetEstimates → actual shown; operational EBITDA approx per SPGI]
  • BEN delivered an in-line EPS print and a meaningful revenue miss versus consensus, with EBITDA below expectations driven by fee mix, Western outflows, and lower adjusted operating margin .
  • Forward estimates imply modest sequential improvement in FY25/early FY26 (EPS/Revenue), but mix and Western normalization remain key swing factors*.

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Mix matters: The revenue miss underscores sensitivity to Western and fee rate mix; monitor monthly AUM disclosures (including Western) for stabilization signals .
  • Expense discipline is a near‑term support: Q3 guidance and FY25 flat expense trajectory, plus FY26 $200–$250M run‑rate saves, provide margin protection into FY26 .
  • Growth vectors intact: ETFs, SMAs (Canvas), and alternatives show durable momentum; multi‑asset/alternatives (+$9.7B) can offset traditional fixed‑income headwinds .
  • Alternatives wealth channel strategy is scaling: Perpetual vehicles and education infrastructure should drive sustained fundraising; Lexington flagship timing is a 2H25/early 2026 catalyst .
  • International diversification contributes: Positive net flows in EMEA/Americas ex‑U.S. and ~$470B non‑U.S. AUM provide resilience amid U.S. tariff uncertainty .
  • Dividend stability: Quarterly dividend maintained at $0.32 per share; income investors can expect continuity while growth initiatives ramp .
  • Trading lens: Near‑term tape will respond to monthly Western outflow prints and Q3 cost execution; medium‑term thesis rests on fee‑rate uplift, alternatives scaling, and FY26 margin expansion .

S&P Global disclaimer: Consensus and estimate values marked with * are retrieved from S&P Global.