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Federated (FHI) Q2 Earnings Beat Estimates, AUM Rises Y/Y

Zacks Equity Research
·4 mins read

Federated Investors FHI reported second-quarter 2020 earnings per share of 80 cents, outpacing the Zacks Consensus Estimate of 65 cents. The figure also compares favorably with the prior-year quarter earnings of 62 cents.

Higher revenues and improved assets under management (AUM) were positives. Also, the company’s liquidity position was strong. However, elevated expenses were a major drag.

Net income was $81.2 million compared with the year-ago quarter’s $62.7 million.

Revenues Climb on Higher AUM, Costs Escalate

Second-quarter total revenues climbed 12% year over year to $360.7 million. Also, the top line surpassed the Zacks Consensus Estimate of $351.3 million. This top-line growth mainly stemmed from higher average money market and fixed-income assets.

Also, net investment advisory fees jumped 11% year over year to $245.1 million. In addition, administrative service fees grew 44% to $83.7 million. Yet, net service fees (other) climbed 26% to $31.9 million.

During the second quarter, Federated derived 44% of its revenues from money-market assets, 46% from equity and fixed-income assets, 9% from alternative/private markets and multi asset, and the remaining 1% from sources other than managed assets.

Due to an increase in the market value of investments, the company recorded non-operating income of $14 million in the quarter, as against the loss of $0.6 million reported in the prior year.

Total operating expenses escalated 11% year over year to $263.5 million. This rise was primarily due to higher distribution, systems and communications, and compensation and professional fees and other expenses.

Asset Position Steady

As of Jun 30, 2020, total AUM was a record $628.8 billion — up 25% year over year. Average managed assets were $636.9 billion, up 29%.

Federated witnessed money-market assets of $457.6 billion, up 37% from the year-ago period. Further, fixed-income assets grew 12% year over year to $73.1 billion.

Nevertheless, equity assets of $76.9 billion dropped 6% year over year. Also, multi-assets decreased 11.9% to $3.7 billion.

As of Jun 30, 2020, cash and other investments were $372.6 million and total long-term debt was $90 million compared with $340.6 million and $100 million, respectively, as of Dec 31, 2019.

During the reported quarter, the company repurchased 843,416 of Federated Hermes class B common stock for $18.1 million.

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 and EPS Surprise
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 #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Investment Managers

Blackstone’s BX second-quarter 2020 distributable earnings of 43 cents per share were in line with the Zacks Consensus Estimate. However, the figure declined 25% from the prior-year quarter. The results reflect an improving assets balance, mainly driven by inflows. However, a decline in segment revenues and higher operating expenses were the undermining factors.

Cohen & Steers’ CNS adjusted earnings of 54 cents per share missed the Zacks Consensus Estimate of 55 cents during the June-end quarter. Moreover, the bottom line came in 12.9% lower than the year-ago reported figure. Results were primarily hurt by a decline in revenues, partly offset by lower expenses. In addition, despite net inflows, the company recorded a fall in its AUM balance.

Affiliated Managers Group Inc.’s AMG second-quarter economic earnings of $2.74 per share surpassed the Zacks Consensus Estimate of $2.70. Nevertheless, the bottom line declined 17.7% year over year. The results reflected lower operating expenses and a robust liquidity position. However, lower revenues, fall in AUM balance and decline in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were headwinds.

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