Franklin Templeton (BEN) reported Q2 fiscal 2025 results that reflected a mix of market-driven headwinds and strategic progress across growth segments. Operating revenues came in at $2.11 billion, down 2% year-over-year and 6% sequentially, as market volatility and continued client outflows pressured topline performance. Despite this, GAAP operating income rose 13% YoY to $145.6 million, though it declined 34% from Q1, while net income attributable to Franklin Resources climbed 22% YoY to $151.4 million, slightly down sequentially.

Adjusted results revealed a softer picture: adjusted net income declined 17% YoY to $254.4 million, and adjusted diluted EPS fell to $0.47 from $0.56 a year ago. Adjusted operating income dropped 10% YoY to $377.2 million, and adjusted operating margin compressed to 23.4%, down from 25.2% last year. Notably, a sharp rise in the effective tax rate to 72.8%, linked to consolidated investment product losses, weighed on profitability.

Total assets under management (AUM) ended the quarter at $1.54 trillion, down 6% YoY and 2% sequentially, primarily impacted by $26.2 billion in long-term net outflows. However, the outflow trend moderated from $50.0 billion in the prior quarter. Excluding Western Asset Management (WAM)—which faced $33.6 billion in outflows due to performance and regulatory concerns—Franklin saw net inflows of $7.4 billion, marking its sixth consecutive quarter of positive flows.

Bright spots emerged in key strategic areas. Alternatives raised $6.8 billion, including $6.1 billion in private markets, and now has three perpetual funds exceeding $1 billion each in AUM. Multi-asset strategies attracted $3.3 billion in net inflows, while ETFs posted their 14th straight quarter of positive flows, with $4.1 billion in net inflows and record $37 billion in AUM. The retail SMA business also saw $1.5 billion in inflows ($3.2 billion ex-WAM), and international business added to the firm’s momentum, with positive flows in EMEA and the Americas contributing to $470 billion in non-U.S. AUM.

By asset class, alternatives and multi-asset stood out with net inflows of $6.4 billion and $3.3 billion, respectively. In contrast, fixed income suffered $30.5 billion in net outflows, and equities saw $5.4 billion in net outflows, reflecting broader market risk aversion. Cash management added $2.7 billion in net flows.

Operationally, Franklin continued to drive efficiency, reducing total operating expenses by 3% YoY, including an 11% decline in compensation and benefits. Looking ahead, management expects Q3 compensation costs to decline further to ~$810 million, with broader FY25 expenses expected to remain flat to FY24. Importantly, Franklin is targeting $200–$250 million in run-rate cost savings entering FY26, with reinvestment focused on high-growth areas like alternatives, ETFs, and digital assets.

CEO Jenny Johnson emphasized the firm’s resilience and diversification, citing strong institutional demand and record $20.4 billion "won-but-unfunded" pipeline. The firm’s investment performance also improved, with over half of mutual fund AUM outperforming peers across key timeframes, and 63% of strategy composites outperforming over 10 years.

In summary, while Franklin Templeton faced notable challenges—particularly around WAM outflows and tax impacts—its expanding foothold in alternatives, continued ETF momentum, disciplined cost controls, and growing international presence highlight a firm actively pivoting toward higher-growth opportunities in a shifting investment landscape.