Federated (FII) Q1 Earnings Miss Estimates on Lower Revenues

Federated Investors, Inc. FII posted a negative earnings surprise of around 7.7% for first-quarter 2018. Earnings per share of 60 cents lagged the Zacks Consensus Estimate of 65 cents, but improved 22%, year over year, from 49 cents.

Lower revenues and reduced equity assets affected the company’s results. However, lower expenses and improved assets under management (AUM) were positives.

Net income for the quarter came in at $60.3 million compared with $49.6 million reported in the year-ago quarter.

Downtrend in Revenues, Costs Down
 
Total revenues in the first quarter declined 4% year over year to $263.9 million. Moreover, the figure missed the Zacks Consensus Estimate of $279.9 million.

The year-over-year fall in revenues was mainly due to the adoption of new revenue recognition accounting principle.

Also, net investment advisory fees dropped 4% year over year to $174.3 million. In addition, net service fees (other) marked an 11% decrease, amounting to $40.6 million. However, administrative service fees were up 5% year over year to $49 million.

During the reported quarter, Federated derived 40% of its revenues from money market assets, and remaining 60% from equity and fixed-income assets.

Furthermore, due to fall in net investment income and higher debt expenses, the company recorded non-operating expenses of $0.8 million in the quarter compared with $3.1 million in the year-ago quarter.

Total operating expenses dipped 6% year over year to $184.2 million. The fall primarily underscores drop in distribution expenses associated with change in a customer relationship.

Steady Asset Position

As of Mar 31, 2018, total AUM was $392.2 billion, up 8% year over year. Average managed assets were $398 billion, up 10% from the prior-year quarter.

Federated witnessed equity assets of $64 billion, down 1% year over year. However, fixed-income assets grew 20% year over year to $62.3 billion.

Additionally, money market assets increased 8% year over year to $265.9 billion. Furthermore, money market mutual fund assets came in at $182.4 billion, up 4% year over year.

As of Mar 31, 2018, cash and other investments were $377.6 million and total long-term debt totaled $165 million, compared with $369.5 million and $170 million, respectively, as of Mar 31, 2017.

Capital Deployment Update

During the first quarter, the company repurchased 118,645 shares of Federated class B common stock, for $3.9 million.

Concurrent with the earnings release, the company’s board of directors announced dividend of 27 cents per share, up 8% from the prior payout. The dividend will be paid on May 15, to shareholders of record as of May 8, 2018.

Our Viewpoint

Federated displays substantial growth potential on the back of its diverse asset and product mix, as well as a solid liquidity position. Furthermore, strategic acquisitions are anticipated to be favorable for the company. Moreover, lower expenses could aid the company’s bottom-line performance, moving ahead. Nonetheless, lower revenues remain a concern.
 

Federated Investors, Inc. Price, Consensus and EPS Surprise

Federated Investors, Inc. Price, Consensus and EPS Surprise | Federated Investors, Inc. Quote

Currently, Federated carries a Zacks Rank #5 (Strong Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Competitive Landscape

BlackRock’s BLK first-quarter 2018 adjusted earnings came in at $6.70 per share, which handily outpaced the Zacks Consensus Estimate of $6.42. Additionally, the bottom line came in 28% higher than the year-ago quarter. Results benefited from an improvement in revenues, rise in AUM and steady long-term inflows. However, increase in operating expenses acted as a headwind.

Ameriprise Financial’s AMP first-quarter adjusted operating earnings per share of $3.70 comfortably surpassed the Zacks Consensus Estimate of $3.47. Also, the figure came in 37% higher than the year-ago quarter level. Results benefited from an improvement in revenues. Also, growth in AUM and assets under administration (AUA) supported the earnings. However, a rise in expenses was an undermining factor.

T. Rowe Price Group TROW reported earnings per share of $1.77 for first-quarter 2018, which lagged the Zacks Consensus Estimate of $1.78. Further, the bottom line improved 14.9% from the year-ago figure of $1.54. First-quarter results reflect escalating expenses. Nevertheless, higher revenues and AUM were the positive factors. Also, the company’s strong balance-sheet position, along with ample liquidity, was the other tailwind.

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