Federated (FHI) Q1 Earnings Lag Estimates on Higher Expenses
Federated Investors FHI reported first-quarter 2020 earnings per share of 63 cents that lagged the Zacks Consensus Estimate of 70 cents. However, the figure compared favorably with the prior-year quarter earnings of 54 cents.
First-quarter results reflected elevated expenses. Also, the company reported non-operating expenses, marred by the coronavirus outbreak. However, higher revenues and improved assets under management (AUM) were positives. Also, the company’s liquidity position was strong.
Net income was $64.2 million compared with $54.5 million in the year-ago quarter.
Revenues Climb on Higher AUM, Costs Escalate
First-quarter total revenues climbed 17% year over year to $359.2 million. Also, the top line surpassed the Zacks Consensus Estimate of $351 million. Top-line growth mainly stemmed from higher average money market and equity assets.
Also, net investment advisory fees jumped 14% year over year to $240.7 million. In addition, administrative service fees grew 33% to $72.2 million. Further, net service fees (other) jumped 11% to $46.3 million.
During the first quarter, Federated derived 43% of its revenues from money-market assets, 51% from equity and fixed-income assets, 5% from alternative/private markets and multi asset, and the remaining 1% from sources other than managed assets.
Due to the impacts of the coronavirus outbreak on the market value of investments, the company recorded non-operating expenses of $7 million in the quarter against income of $1.6 million a year ago.
Total operating expenses escalated 13% year over year to $266.4 million. The rise was primarily due to higher distribution, systems and communications, and compensation and professional fees.
Asset Position Steady
As of Mar 31, 2020, total AUM was a record $605.8 billion — up 25% year over year. Average managed assets were $580.2 billion, up 22%.
Federated witnessed money-market assets of $451.3 billion, up 42% from the year-ago period. Further, fixed-income assets grew 1% year over year to $64.7 billion.
Nevertheless, equity assets of $68.2 billion declined 15% year over year. Also, multi-assets decreased 18% to $3.5 billion.
As of Mar 31, 2020, cash and other investments were $381 million and total long-term debt was $195 million compared with $340.6 million and $100 million, respectively, as of Dec 31, 2019.
Our Viewpoint
Federated displays substantial growth potential, supported by its diverse asset and product mix as well as a solid liquidity position. In addition, acquisitions are anticipated to be beneficial for the company. Though elevated expenses pose a concern, higher revenues could aid its bottom-line performance.
Federated Hermes, Inc. Price, Consensus and EPS Surprise
Federated Hermes, Inc. price-consensus-eps-surprise-chart | Federated Hermes, Inc. Quote
Currently, Federated carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Competitive Landscape
Waddell & Reed Financial Inc.’s WDR first-quarter 2020 earnings per share of 32 cents missed the Zacks Consensus Estimate by a penny. Also, the bottom line declined 24% year over year.
T. Rowe Price Group, Inc. TROW reported first-quarter 2020 adjusted earnings per share of $1.87, which outpaced the Zacks Consensus Estimate of $1.85. The reported figure was in line with the year-ago quarter.
Affiliated Managers Group Inc.’s AMG first-quarter 2020 economic earnings of $3.16 per share surpassed the Zacks Consensus Estimate of $3.14. However, the bottom line declined 3.1% year over year.
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