10-Q: Franklin Resources Q1 Earnings Surge 56% on AUM Growth

Sentiment:

Quarterly Report 30 January 2026 8:43 AM

Franklin Resources, Inc. reported a significant 56% increase in net income attributable to the company for the first fiscal quarter ended December 31, 2025, driven by strong AUM growth and strategic acquisitions.

Capital raiseOn December 11, 2025, the company increased its aggregate commitments under the Amended and Restated Revolving Credit Agreement by $400.0 million, bringing the total to $1.5 billion.On January 8, 2026, the company borrowed $150.0 million under this expanded Credit Agreement for general corporate purposes.The company has $500.0 million of short-term commercial paper available for issuance under an uncommitted private placement program, though it has been inactive since 2012.

Better than expectedNet income attributable to Franklin Resources, Inc. increased by a substantial 56% year-over-year.Diluted earnings per share rose by 59% year-over-year.Operating income increased 28% year-over-year, demonstrating improved operational efficiency.The company achieved positive long-term net inflows of $28.0 billion, a significant reversal from net outflows in the prior year, indicating stronger client asset gathering.Total AUM grew 7% year-over-year, reflecting both market appreciation and net inflows.

Summary

Net income attributable to Franklin Resources, Inc. increased by 56% to $255.5 million for the three months ended December 31, 2025, compared to $163.6 million in the prior year.
Diluted earnings per share rose by 59% to $0.46, up from $0.29 in the same period last year.
Total operating revenues grew 3% to $2,327.1 million, primarily driven by increases in investment management fees (+3%), sales and distribution fees (+4%), and shareholder servicing fees (+12%).
Operating income increased 28% to $281.0 million, with the operating margin expanding to 12.1% from 9.7%.
Total Assets Under Management (AUM) reached $1,684.0 billion at December 31, 2025, a 7% increase from December 31, 2024, and 1% higher than September 30, 2025.
The company achieved long-term net inflows of $28.0 billion for the quarter, a significant turnaround from net outflows of $50.0 billion in the prior year period.
The acquisition of Apera Asset Management on October 1, 2025, contributed $6.1 billion to AUM.
Investment and other income, net, saw a substantial increase to $80.3 million from $10.5 million, largely due to a dividend from a strategic investment, lower net losses on investments, and a gain on the sale of owned office space.
The effective income tax rate decreased to 23.2% from 25.9%, primarily due to excess tax benefits related to stock-based compensation and a higher proportion of foreign earnings in lower-tax jurisdictions.

Sentiment

Score: 8

Explanation: StockSavvy.ai views this as a strong quarter with significant earnings growth, positive AUM trends, and strategic acquisitions, despite ongoing legal challenges and increased operating cash usage. The turnaround in long-term net flows is a key positive indicator.

Positives

Net income attributable to Franklin Resources, Inc. increased 56% to $255.5 million.
Diluted earnings per share grew 59% to $0.46.
Operating income increased 28% to $281.0 million, with operating margin improving to 12.1%.
Total operating revenues increased 3% to $2,327.1 million.
Total AUM grew 7% year-over-year to $1,684.0 billion, and 1% quarter-over-quarter.
Achieved $28.0 billion in long-term net inflows, a significant improvement from $50.0 billion in net outflows in the prior year.
Acquisition of Apera Asset Management added $6.1 billion to AUM.
Investment and other income, net, surged 665% to $80.3 million, driven by strategic investment dividends and asset sales.
Occupancy expenses decreased 11% due to office space consolidation in New York City.
Amortization of intangible assets decreased 51% due to prior year assets becoming fully amortized and reclassification of certain indefinite-lived assets.

Negatives

Fixed Income AUM decreased by 7% year-over-year to $437.7 billion.
Net cash used in operating activities increased to $255.1 million from $145.2 million in the prior year, primarily due to timing of cash payments and receipts.
Expenses of consolidated investment products increased 92% to $14.0 million.
Sales-based fees decreased 3% due to a 6% decrease in commissionable sales.
Net foreign currency exchange losses of $4.0 million were recognized, compared to net gains of $14.5 million in the prior year, as the U.S. dollar weakened against certain currencies.

Risks

Market and volatility risks, including fluctuations in global equity and bond markets.
Investment performance and reputational risks, which can negatively impact revenues and income.
Global operational risks, including the complexity of operating in diverse regulatory environments.
Competition and distribution risks, affecting the ability to attract and retain clients.
Third-party risks, including reliance on external partners.
Technology and security risks, such as cybersecurity threats.
Human capital risks, including the ability to attract, retain, and develop personnel.
Cash management risks, including the need to satisfy operational and regulatory requirements and fund capital contributions.
Legal and regulatory risks, including ongoing investigations and litigation such as the Western Asset Management (WAM) investigations and the Franklin Templeton 401(k) Retirement Plan litigation.
Potential for additional costs, monetary judgments, settlements, fines, penalties, restitution, or alterations in business practices from legal proceedings.
Reputational harm from legal and regulatory matters.
Inability to predict the outcome of lawsuits or estimate reasonably possible losses.
Future changes in assumptions used to estimate fair value in impairment tests could result in recognition of impairment.

Future Outlook

The company expects its main uses of cash to include investing in and growing its business, including through acquisitions, paying stockholder dividends, investing in its products, paying income taxes and business expenses, enhancing technology infrastructure and business processes, repurchasing shares of common stock, and repaying and servicing debt. The company currently expects to continue paying comparable regular dividends on a quarterly basis to holders of its common stock, depending upon earnings and other relevant factors.

Management Comments

Management believes the claims made in the lawsuits are without merit and the Company intends to defend against them vigorously.

Industry Context

StockSavvy.ai notes the positive global equity market returns and relatively flat global bond markets during the quarter, which generally supported the company's equity and multi-asset AUM growth. The acquisition of Apera Asset Management, a pan-European private credit firm, aligns with broader industry trends of asset managers expanding into alternative assets and private credit to diversify revenue streams and capture growth in less liquid markets. The significant turnaround in long-term net inflows suggests improved competitive positioning or favorable market conditions for the company's product offerings compared to the prior year.

Comparison to Industry Standards

Mutual fund performance against peer group medians: 49% of AUM in top two quartiles for 1-year, 60% for 3-year, 54% for 5-year, and 55% for 10-year periods.
Strategy composite performance against benchmarks: 48% of AUM exceeding benchmark for 1-year, 54% for 3-year, 51% for 5-year, and 64% for 10-year periods.
Fixed Income performance was notably strong, with 74-77% of mutual fund AUM in top two quartiles and 68-91% of strategy composite AUM exceeding benchmarks across various periods, indicating strong relative performance in this asset class.
Equity performance was more mixed, with 49-60% of mutual fund AUM in top two quartiles and 36-47% of strategy composite AUM exceeding benchmarks across various periods, suggesting areas for potential improvement relative to peers and benchmarks in certain timeframes.

Management Changes

Role	Previous Person	New Person	Effective Date	Reason
co-Chief Investment Officer of Western Asset Management (WAM)	Ken Leech	NA	NA	Retired and is no longer with the Company, following a Wells Notice from the SEC and being placed on administrative leave.

Corporate Governance

Change Type	Description	Effective Date	Impact Assessment
Bylaws Amendment	Amended and Restated Bylaws of Registrant adopted and effective.	2025-07-08	Reflects updated corporate governance framework.
Non-Employee Director Compensation Structure	Approved changes to annual equity awards ($205,000), Board annual cash retainers ($110,000), Lead Director annual cash retainer ($50,000), Committee Chair retainers (Audit $45,000, Compensation/Corporate Governance $37,000), other Committee Member retainers (Audit $15,000, Compensation/Corporate Governance $12,000), and a special committee meeting fee ($2,500 per meeting, up to $50,000/fiscal year) for the Litigation and Regulatory Matters Committee.	2025-12-17	Adjusts compensation for non-employee directors, potentially impacting director recruitment and retention, and reflecting committee responsibilities.

Legal Proceedings

India Credit Fund Closure Matters: No significant changes from prior disclosures.
Western Asset Management (WAM) Investigations and Litigation: The U.S. Department of Justice (DOJ) is prepared to resolve its investigation without criminal charges against WAM. The SEC investigation remains ongoing. Ken Leech, former co-Chief Investment Officer of WAM, received a Wells Notice from the SEC in August 2024, retired, and faces a complaint from the SEC and an indictment from the DOJ for alleged violations related to trade allocations and false statements.
Class Action Lawsuit against Franklin, WAM, and Ken Leech: Filed July 3, 2025, by Western PA Electrical Employees Insurance Trust Fund, seeking class certification on behalf of shareholders of two WAM-managed funds for claims under the Securities Exchange Act of 1934 related to trade allocations. Abilene Firemens Relief and Retirement Fund was named lead plaintiff on December 19, 2025, and the case was transferred to the U.S. District Court for the Central District of California effective January 9, 2026. Plaintiffs are seeking damages, interest, and costs.
Franklin Templeton 401(k) Retirement Plan Litigation: Lawsuit filed July 22, 2025, by former employees, amended November 10, 2025, against Franklin, the Franklin Templeton 401(k) Retirement Plan Committee, the Investment Committee, and Gallagher Fiduciary Advisors, LLC. Plaintiffs allege breaches of fiduciary duties and failure to monitor Plan fiduciaries in connection with the Plan's inclusion of certain proprietary funds as investment options. Plaintiffs seek damages, disgorgement, removal of investments, and replacement of fiduciaries.
Management believes the claims in these lawsuits are without merit and intends to defend vigorously, but cannot predict the outcome or estimate any reasonably possible loss.

Stakeholder Impact

Shareholders: Benefit from increased net income, diluted EPS, and AUM growth. Continued dividend payments and share repurchase program enhance shareholder value. However, ongoing legal proceedings introduce uncertainty.
Employees: Impacted by workforce optimization initiatives, leading to special termination benefits. Incentive compensation increased due to performance expectations and sales-related commissions. Global workforce decreased to approximately 9,900 employees from 10,100.
Customers/Clients: Benefit from strong investment performance in certain asset classes, particularly fixed income. Long-term net inflows suggest continued client confidence in the company's offerings.
Creditors: The company maintains compliance with all debt covenants and has expanded its credit facility, indicating sound financial management of its obligations.

Next Steps

Repay the $450 million 4.750% senior notes due March 2026 from existing cash and other sources of liquidity.
Continue paying comparable regular dividends on a quarterly basis to common stockholders.
Continue the stock repurchase program, with 38.3 million shares remaining available for repurchase under the current authorization.
Pay up to $125.0 million in cash through the fifth anniversary of the closing date for the Apera Asset Management acquisition, based on achieving revenue targets.
Pay up to $375.0 million between the third and seventh anniversaries of the Putnam acquisition closing date, related to revenue growth targets from the strategic partnership with Great-West Lifeco, Inc.

Key Dates

Date	Description
2024-08	Ken Leech, former co-Chief Investment Officer of WAM, received a Wells Notice from the staff of the SEC and was placed on administrative leave.
2024-11-25	The SEC filed a complaint in the United States District Court for the Southern District of New York against Mr. Leech alleging violations related to trade allocations.
2024-11-25	The DOJ filed an indictment with the United States District Court for the Southern District of New York against Mr. Leech for similar allegations and for false statements made to the SEC.
2025-01-01	Closing date of the Putnam acquisition, which includes contingent consideration payments between the third and seventh anniversaries.
2025-07-03	Franklin, WAM, and Ken Leech were named as defendants in a class action lawsuit filed by the Western PA Electrical Employees Insurance Trust Fund in the U.S. District Court for the Western District of Pennsylvania.
2025-07-08	Amended and Restated Bylaws of Registrant adopted and effective.
2025-07-22	Franklin and the Franklin Templeton 401(k) Retirement Plan Committee were named as defendants in a lawsuit filed by certain former employees in the U.S. District Court for the Northern District of California.
2025-08-01	Date of annual impairment tests performed for goodwill and indefinite-lived intangible assets.
2025-09-30	End of fiscal year 2025.
2025-10-01	Company adopted an amendment to existing intangible assets guidance, recognizing a cumulative effective adjustment of $25.3 million in retained earnings.
2025-10-01	Company completed the acquisition of Apera Asset Management for cash consideration of $65.2 million, net of closing adjustments.
2025-11-10	Plaintiffs in the Franklin Templeton 401(k) Retirement Plan litigation filed an amended complaint adding additional defendants.
2025-12-11	Company entered into a Joinder and Commitment Increase Agreement, amending the Amended and Restated Credit Agreement to increase aggregate commitments by $400.0 million to $1.5 billion.
2025-12-17	The Board of Directors approved certain changes to Non-Employee Director Compensation.
2025-12	The Board of Directors authorized the repurchase of up to an additional 20.8 million shares of common stock, bringing the total available for repurchase to 40.0 million shares.
2025-12-19	Abilene Firemens Relief and Retirement Fund was named the lead plaintiff in the class action lawsuit against Franklin, WAM, and Ken Leech.
2025-12-31	End of the quarterly period covered by this report.
2026-01-08	Company borrowed $150.0 million under the Amended and Restated Revolving Credit Agreement for general corporate purposes.
2026-01-09	The class action lawsuit against Franklin, WAM, and Ken Leech was transferred to the U.S. District Court for the Central District of California.
2026-01-22	Number of shares of common stock outstanding was 520,763,448.
2026-03	Maturity date for $450 million 4.750% senior notes that the company intends to repay.

Recommendation

buy

The company delivered strong financial results for the quarter, with significant increases in net income and diluted EPS, driven by robust AUM growth and a positive turnaround in long-term net inflows. Strategic acquisitions like Apera Asset Management further enhance its market position in alternative assets. While legal proceedings introduce some uncertainty, the company's strong operational performance, commitment to shareholder returns through dividends and share repurchases, and improved operating efficiency make it an attractive investment for seasoned investors.

Keywords

Asset Management, Investment Management, Financial Services, AUM, Earnings, SEC Filing, Franklin Templeton, Western Asset Management, Private Credit, Acquisitions, Share Repurchase, Dividends, Q1 Earnings

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