Franklin Resources Earnings Call Insights: Operating Leverage and Overall European Industry Activity
Franklin Resources Inc. (NYSE:BEN) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.
Craig Siegenthaler – Credit Suisse: Just looking at operating revenue growth versus comp growth over last year they were actually quite similar it looks like around 12%, despite the fact that revenue growth is very strong. I was wondering if you could maybe provide some details why there hasn’t been more operating leverage between comp and revs.
Gregory E. Johnson – CEO and President: I was looking back four years, maybe with the exception of 2009 the global financial crisis, that it has been pretty stable. It is not a metric that we target or manage to, but it is just an outcome of our process it has been pretty stable. I think the answer is a lot of – there is some – it is based on operating income so that’s going to keep things relatively in line, there is a component of compensation that is related to sales activity and commissions so as the business grow that tends to grow too. I think that’s the main factors why that have stayed the same. If you look at our increase in headcount much of that has been in low cost jurisdictions so kind of the cost per capita has been actually decreasing, I would say.
Craig Siegenthaler – Credit Suisse: You mentioned Riva a lot in the prepared commentary what’s the current EBITDA or income contribution from this business and actually how large is going to get to?
Gregory E. Johnson – CEO and President: It is basically nil and up until this point it’s been an investment that we’ve been making. The question is we have a 51% ownership in the entity so when people see the functionality of the product we think that there is pretty good opportunity to grow that business.
Craig Siegenthaler – Credit Suisse: So, that’s consolidated on the income statement, I guess, it is up in other net revenues?
Gregory E. Johnson – CEO and President: It could be in non-operating income, it could be in G&A.
Overall European Industry Activity
J. Jeffrey Hopson – Stifel: So, obviously the U.S. has seen a big pickup in flow activity in January and Europe and other areas I guess did not fall off as much. Any sense that could give us on European overall industry activity in January and how you think you’re positioned there?
Gregory E. Johnson – CEO and President: Jeff, we’re trying not to talk about the next quarter, I think just speaking generally, January tends to be a very strong month for flows with retirement contributions and with the strength of the markets and momentum, we expect to see that to carry through and are seeing that for us. Europe continues to be strong and also was one of our improving areas certainly over the last quarter where we had pretty good net inflows in many of our countries throughout Europe, so that trend is continuing as well.
J. Jeffrey Hopson – Stifel: On the global fixed side, can you give us some updates on the institutional, I guess, pipelines in interest level and particularly have you had much success in introducing that product on 401(NYSE:K) platforms where there doesn’t appear to be much embedded penetration I guess?
Gregory E. Johnson – CEO and President: Yeah, I think, there continues to be strong interest institutionally. We have had a very significant win that we expect to fund this quarter in emerging markets debt. I think the 401(NYSE:K) side continues to grow. It’s still not a big portion, but looking at the overall flows of over $5 billion in international bonds, last quarter it’s safe to say that the momentum that we had back over a year ago, certainly returned on the strength of performance and we expect that to continue.