Janus Capital Group Inc. said Thursday that profits rose 80% in the first quarter as assets under management grew, but analysts and the market remained cautious about the long-struggling Denver money manager.
Managed assets went up 6.4%, to $158.1 billion at March 31, from the previous quarter. Average assets during the first quarter were $154.4 billion, up about 8.8%.
The company reported $3.5 billion of net inflows into long-term portfolios, $800 million of outflows from its money market funds, and $6.9 billion of inflows from market appreciation and fund performance.
"Janus is in a strong position today," said Gary Black, the chief executive officer. "We are growing again from a flows standpoint and from an earnings standpoint."
Revenue rose to $232.5 million, from $216 million the year earlier. Net income of $35.3 million, or 17 cents per share, was up from $19.6 million, or 9 cents per share, a year before. The profit increase matched the average of analyst estimates sampled by Thomson First Call.
But analysts, and the market, seemed less than convinced that the company has rebounded. Janus' stock price fell 13.7%, to $20.22 a share in midafternoon trading.
Robert Lee, an analyst at Keefe, Bruyette & Woods Inc. in New York, said the stock slumped because investors were expecting greater improvement in operating margins. This margin was 27.1% in the quarter, up from 24.6% in the fourth quarter and 20.6% in the first quarter of last year.
"Investors expected as Janus built momentum in terms of asset growth and new business trends that that'd translate to stronger operating growth and better operating leverage," Mr. Lee said. "There is a general frustration that there is not as much operating leverage as I forecast and as others forecast."
"And one take from the conference call is that operating leverage is going to remain flat for the time being," he added. "There will still be some growth, but it may not be as much as some expected."
Some analysts said the market was disappointed that Intech, Janus' quantitative investment unit, had only $4 billion of inflows, down from $5.1 billion in the fourth quarter.
Mr. Lee said Intech's inflows were in line with expectations. "The reality is, inflows bounce around," he said. "If someone meets or beats inflow expectations by a couple of hundred million, unless you think something is wrong, it is hard to get worked up over it."
As Intech's share of Janus' managed assets continues to grow, he said, investors should become concerned because, as a quantitative manager, its products earn lower fees than Janus' actively managed products.
Mr. Black said Intech remains Janus' fastest-growing unit and he "expects it to continue to grow dramatically. Intech has had strong performance, and long-term we want to grow out the franchise."
Intech ended the quarter with more than $50 billion under management. Excluding Intech, Janus' long-term net outflows totaled $500 million in the first quarter, down from $900 million in the previous quarter and $3.9 billion the year earlier.
In February, the company's equity and bond funds had their first month of net inflows since May 2001, according to Christopher Sporcic, a research analyst at Financial Research Corp., a Boston company that tracks fund flows. It expected to have released the March flows data by today, and Mr. Sporcic said a preliminary look indicated outflows for Janus. "But it is a small figure which could possibly swing positive depending on changes that are made," he said.
Mr. Black, who became chief executive last October, said Janus has had inflows because of strong and consistent performance regardless of market conditions. About 52% of Janus' portfolios have four- or five-star ratings from Morningstar, he said, up from 36% a year earlier, and the company has had $1.5 billion of inflows into these products.
An increasing interest in growth products, specifically from institutional clients, is helping drive inflows, Mr. Black said. The company has doubled the size of its institutional team in the last 18 months, he said, and had a couple of significant "wins" - new institutional business - in its large-cap growth category.
David Martin, Janus' chief financial officer, said it continues to invest in distribution and marketing as it tries to fuel organic growth. Janus plans to add operational support to its international investment team, he said, and increase its wholesalers from 36 to 45 by yearend.
Mr. Black said the company would also like to increase distribution in its mutual fund wrap program. "We have invested in separately managed accounts," he said. "That is an area that we need to be in. We have a dedicated team for separately managed accounts have gotten a lot of traction there over the last eight to 12 months. ... We are gaining traction and putting resources behind getting on large SMA platforms."
