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Federated (FII) Q2 Earnings Beat Estimates, Revenues Increase

Zacks Equity Research

Federated Investors, Inc. FII delivered a positive earnings surprise of 8.8% in second-quarter 2019. Earnings per share of 62 cents surpassed the Zacks Consensus Estimate of 57 cents. Moreover, the figure compares favorably with the prior-year quarter earnings of 38 cents.

Higher revenues and improved assets under management (AUM) were positives. Also, the company’s liquidity position remained strong. However, elevated expenses were on the downside.

Net income was $62.7 million compared with $38.8 million witnessed in the year-ago quarter.

Revenues Rise, Costs Escalate

Second-quarter total revenues climbed 26% year over year to $321.5 million. Also, the top line surpassed the Zacks Consensus Estimate of $316.3 million.

The top-line growth mainly stemmed from the consolidation of Hermes' revenues and higher average domestic money market assets, partly muted by softer revenues from lower average equity assets.

Also, net investment advisory fees jumped 31% year over year to $220.7 million. In addition, administrative service fees were up 20% to $58 million. Further, net service fees (other) marked an 8% jump, amounting to $42.8 million.

During the second quarter, Federated derived 38% of its revenues from money-market assets, 61% from equity and fixed-income assets, and remaining 1% from sources other than managed assets.

Marred by fall in net investment income and higher debt expenses, the company recorded non-operating expenses of $0.6 million in the quarter against income of $1.6 million a year ago.

Total operating expenses escalated 35% year over year to $236.5 million. The rise was primarily due to higher office and occupancy, systems and communications and compensation and related expenses.

Steady Asset Position

As of Jun 30, 2019, total AUM was a record $502.2 billion — up 32.3% year over year. Average managed assets were $493.3 billion, up 27.8%.

Federated witnessed equity assets of $82 billion, up 41.4% year over year. Also, money market mutual fund assets came in at $214.8 billion, up 18%.

Further, fixed-income assets grew 5.9% year over year to $65.1 billion. Additionally, money-market assets increased 30.5% to $333.1 billion.

As of Jun 30, 2019, cash and other investments were $227 million and total long-term debt totaled $125 million compared with $190.5 million and $135 million, respectively, as of Dec 31, 2018.

Our Viewpoint

Federated displays substantial growth potential supported by its diverse asset and product mix as well as a solid liquidity position. In addition, strategic acquisitions are anticipated to be favorable for the company. Though elevated expenses remain a concern, higher revenues could aid the company’s bottom-line performance.

Federated Investors, Inc. Price, Consensus and EPS Surprise

Federated Investors, Inc. Price, Consensus and EPS Surprise

Federated Investors, Inc. price-consensus-eps-surprise-chart | Federated Investors, Inc. Quote

Currently, Federated carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Competitive Landscape

T. Rowe Price Group, Inc. TROW delivered a positive earnings surprise of 6.3% in second-quarter 2019. Adjusted earnings per share came in at $2.03, outpacing the Zacks Consensus Estimate of $1.91. Results also improved 14.7% from the year-ago figure of $1.77.

Blackstone BX has reported second-quarter 2019 distributable earnings of 57 cents, beating the Zacks Consensus Estimate of 50 cents. Moreover, the figure reflects rise from 56 cents earned in the prior-year quarter.

BlackRock, Inc.’s BLK second-quarter 2019 adjusted earnings of $6.41 per share lagged the Zacks Consensus Estimate of $6.52. Moreover, the figure was 3.8% lower than the year-ago quarter number.

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