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Federated (FII) Q3 Earnings Beat Estimates on Higher Assets

Zacks Equity Research

Federated Investors, Inc. FII delivered third-quarter 2019.positive earnings surprise of 9.1%. Earnings per share of 72 cents surpassed the Zacks Consensus Estimate of 66 cents. Moreover, the figure compared favorably with the prior-year quarter earnings of 59 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 $73 million compared with $59.6 million witnessed in the year-ago quarter.

Revenues Rise, Costs Escalate

Third-quarter total revenues climbed 10% year over year to $340.3 million. Also, the top line surpassed the Zacks Consensus Estimate of $331 million. Rise in top line was attributable to higher average money market assets.

Also, net investment advisory fees jumped 7% year over year to $232.1 million. In addition, administrative service fees were up 29% to $64.2 million. Further, net service fees (other) jumped 5%, amounting to $44 million.

During the third quarter, Federated derived 41% of its revenues from money-market assets, 58% from long-term assets including equity and fixed-income assets, and remaining 1% from sources other than managed assets.

Supported by lower debt expenses, the company recorded non-operating income of $7.5 million in the quarter compared with $1.8 million a year ago.

Total operating expenses escalated 11% year over year to $251 million. The rise was primarily due to higher office and occupancy, distribution, systems and communications, and compensation and related expenses.

Steady Asset Position

As of Sep 30, 2019, total AUM was a record $527.2 billion, up 21% year over year. Average managed assets were $518 billion, up 19%.

Federated’s equity assets were $80.8 billion, down 4% year over year. However, money market mutual fund assets came in at $261.2 billion, up 43%.

Further, fixed-income assets grew 1% year over year to $65.8 billion. Additionally, money-market assets increased 36% to $359.3 billion.

As of Sep 30, 2019, cash and other investments were $309 million and total long-term debt totaled $120 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 #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Competitive Landscape

Blackstone’s BX third-quarter 2019 distributable earnings of 58 cents surpassed the Zacks Consensus Estimate of 54 cents. However, the figure declined from 63 cents earned in the prior-year quarter.

T. Rowe Price Group, Inc. TROW delivered a positive earnings surprise of 7.6% in third-quarter 2019. Adjusted earnings per share came in at $2.13, outpacing the Zacks Consensus Estimate of $1.98. Results also improved 7% from the year-ago figure of $1.99.

Invesco IVZ reported third-quarter 2019 adjusted earnings of 70 cents per share, beating the Zacks Consensus Estimate of 57 cents. Also, the bottom line was 6.1% up from the prior-year quarter figure.

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