Denver-based Janus Capital Group Inc., a U.S. money manager with $158.3 billion of assets, said today third-quarter earnings fell 6.9 percent because of expenses from the loss of two large accounts and additional mutual-fund withdrawals.
Net income declined to $29.5 million, or 15 cents a share, from $31.7 million, or 15 cents, a year earlier, the Denver-based company said in a statement today. Revenue, mostly from money- management fees, increased 5.3 percent to $250.1 million.
Results included $10.5 million in write-offs, mainly from insurer Aegon NV’s switch of a $2.3 billion growth-stock fund to its own Transamerica Investment Management unit. Investors in the quarter removed $1.8 billion from Janus-managed portfolios, primarily from its signature growth funds, offsetting flows into those run by its Intech division.
“We are, of course, waiting for the markets to embrace us again” when growth funds return to favor, Chief Executive Officer Gary Black, 46, said on a conference call with analysts.
The Russell 1000 Value Index, tracking shares of companies deemed to be cheap relative to earnings and other financial measures, has risen 15 percent this year, three times the pace of the Russell 1000 Growth Index, which gauges companies with above- average earnings growth. Value stocks have outperformed growth shares for five of the past six years.
Janus was expected to earn an average of 16 cents a share, according to a Thomson Financial survey of 12 analysts. Thomson didn’t specify the basis of the estimates. The write-offs amounted to 3 cents a share, Janus said.
Lost Accounts Janus shares rose 71 cents, or 3.4 percent, to $21.41 in New York Stock Exchange composite trading. The stock has gained 15 percent this year, compared with 11 percent for the Standard & Poor’s Supercomposite Asset Management and Custody Banks Index.
Besides the Aegon account, Janus recorded costs from the pending loss of a $900 million management contract as well as legal expenses.
The second dropped account was prompted by Principal Financial Group’s takeover of Washington Mutual Inc.’s mutual- fund subsidiary. Aegon’s account will move to Transamerica this quarter while the Principal portfolio will be transferred in early 2007.
Without the impairment costs, money-management expenses would have declined. Employee compensation and benefits costs dropped 12 percent from a year earlier to $70.7 million and long- term compensation fell 6.1 percent to $17 million.
Watching Expenses “The key to me is how much these lower costs can continue,” said Franklin Morton, senior vice president at Ariel Capital Management LLC in Chicago. Ariel is the largest stockholder of Janus, with about 14 percent of the shares.
Deposits with Intech slowed to $1.7 billion from $2.6 billion in the previous three months, bringing net withdrawals from Janus’s long-term stock and bond funds to $100 million. Intech had $5.1 billion in net sales in 2005’s third quarter.
“It has slowed from its torrid pace,” Morton said. “But it still has one of the highest organic growth rates in the industry.” Based in Palm Beach Gardens, Florida, Intech selects investments with computer-based formulas. It has $55.6 billion in assets, 35 percent of Janus’s total.
Shareholders removed $1.6 billion from Janus’s well-known growth funds, such as the $9.2 billion Janus Twenty, and $100 million from so-called value funds.
Janus bought back 7.7 million shares in the quarter for $138 million. The company has paid $368 million for stock this year, reducing outstanding shares by 7.8 percent. Since the third quarter of 2004, the company has cut shares by 17 percent.
Black said the repurchases remain the best way to return cash to shareholders and are more attractive than seeking a buyer for Janus.
“If something came along that offered a higher return than our stock, of course we would be compelled to look at it,” Black said. “We are committed to remaining independent because we feel that strategy is working right now.”
