(Updates with additional information about investor attitudes and Franklin's fund flows, starting in the fifth paragraph.)
Franklin Resources Inc.'s (BEN) fiscal third-quarter income fell 26% on falling revenue and margins as the mutual-fund company - like the rest of the industry - deals with falling assets under management from a year earlier.
But earnings handily beat expectations.
The recent improvement in markets bodes well for money managers, who have been buffeted by the downturn. The industry struggled in recent quarters as some investors rushed to the sidelines, and uncertainty remains about who will benefit from Wall Street consolidation.
Rivals Invesco Ltd. (IVZ) and T. Rowe Price Group Inc. (TROW) reported steep quarterly declines, though Rowe beat expectations after the recent stock-market rally boosted the value of the assets it oversees.
In a recorded presentation, Franklin executives sounded an upbeat note, saying investors were beginning to venture out of the safest holdings, such as cash, and into options that are riskier - and more profitable for fund managers - like stock and bond funds.
Nonetheless, investors are taking a "back to basics" approach, according to Franklin, steering clear of more novel investments, often called alternatives.
For the period ended June 30, Franklin posted income of $297.7 million, or $1.29 a share, down from $403.3 million, or $1.71 a share, a year earlier. Revenue decreased 29% to $1.07 billion as investment management fees slid 32% and assets under management fell 22% to $451.2 billion.
Analysts polled by Thomson Reuters expected earnings of 87 cents and revenue of $1.01 billion.
Operating margin fell to 30% from 35%.
Assets under management rose 15% from the prior quarter. While most of that improvement was due simply to rising market prices, investors poured in about $6 billion of new money, the first time Franklin has seen net inflows since the June 2008 quarter.
Franklin's shares rose 3.4%, or $2.77 to $83.30 in early trading. The stock is up 26% this year, through Wednesday's close.
-By Kerry Grace Benn, Dow Jones Newswires; 212-416-2353; kerry.benn@dowjones.com
(Ian Salisbury contributed to this article.)