Franklin Resources Q2 Results Highlight Resilience Amid Market Headwinds

Franklin Resources (NYSE: BEN) reported mixed results for its fiscal second quarter ended March 31, 2025, with adjusted earnings per share (EPS) falling short of prior quarters despite exceeding revenue expectations. While the company navigated headwinds including net outflows and market volatility, its strategic focus on ETFs, alternatives, and institutional pipelines offers clues about its path forward.

Revenue and Earnings: A Closer Look

Franklin’s total revenue reached $2.11 billion, surpassing Wall Street’s $1.98 billion forecast. However, adjusted revenue—excluding non-operational items—dropped to $1.61 billion, down from $1.68 billion in Q1 2025 and $1.67 billion in Q2 2024. Net income fell to $0.26 per diluted share, while adjusted EPS of $0.47 reflected a 20% sequential decline, driven by a $41.4 million loss on a renewable energy seed investment.

What Caused the Decline?

1. Asset Outflows and Market Pressures
   Franklin faced $26.2 billion in long-term net outflows, including $33.6 billion from Western Asset Management (now integrated into Franklin Templeton). These outflows, along with a $11.6 billion drag from market depreciation, reduced AUM to $1.54 trillion, down 2% sequentially and 6% year-over-year.

2. Operating Expenses Rise
   Amortization of intangible assets surged 33% to $112.5 million, while a $24.4 million impairment charge for intangible assets added to pressures. CEO Jenny Johnson cited “complex market conditions” and the integration of Western’s operations as contributing factors to elevated costs.

3. Competitive Fee Environment
   The adjusted effective fee rate dipped to 38.3 basis points, down from 38.5 basis points in Q2 2024, signaling ongoing pricing pressures in traditional asset management.

Bright Spots in the Report

Despite the challenges, Franklin highlighted $4.1 billion in ETF net inflows, marking the 14th consecutive quarter of positive flows and pushing ETF AUM to a record high. The Alternatives by Franklin Templeton division raised $6.8 billion, with $6.1 billion allocated to private markets, underscoring demand for innovative wealth solutions.

The institutional pipeline grew to $20.4 billion—a $2.3 billion increase—indicating strong demand for future mandates. Excluding Western, Franklin Templeton’s net inflows hit $7.4 billion, suggesting progress in stabilizing client relationships.

CEO Commentary: Focus on Diversification and Innovation

Johnson emphasized Franklin’s global scale and diversified product offerings as key strengths. The company’s Canvas® platform and Franklin Lexington Private Markets Fund (which raised $2 billion) reflect its push into high-margin alternatives and wealth management.

What Does This Mean for Investors?

Franklin’s Q2 results reveal a company balancing short-term headwinds with long-term opportunities. While net outflows and fee pressures remain concerns, its institutional pipeline and ETF growth suggest resilience in key segments. The stock closed at $18.74 on May 2—the release date—up slightly from $18.40 at the start of 2025, but down from a 52-week high of $21.80.

Conclusion: Navigating Volatility with Strategic Assets

Franklin Resources’ Q2 results underscore the challenges of managing assets in a volatile market, yet its strategic bets on alternatives and ETFs provide a roadmap for recovery. With $20.4 billion in institutional mandates and record ETF inflows, the company is positioned to capitalize on client demand for diversification. However, the path to growth hinges on reversing net outflows and stabilizing fee margins.

The adjusted EPS decline of 20% sequentially and the 6% drop in AUM highlight near-term risks, but Franklin’s focus on innovation—paired with its $1.54 trillion AUM base—suggests it can weather the storm. Investors should monitor Q3 results for signs of stabilization in net flows and fee rates, as well as progress in integrating Western’s operations. For now, Franklin’s mix of challenges and opportunities paints a cautiously optimistic picture for long-term investors.