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Federated (FHI) Q3 Earnings Beat Estimates, AUM Rises Y/Y

Federated Hermes FHI reported third-quarter 2021 earnings per share of 73 cents, outpacing the Zacks Consensus Estimate of 70 cents. The figure, however, compares unfavorably with prior-year quarter earnings of 85 cents.

Lower expenses and improved assets under management (AUM) were positives. Also, the company’s liquidity position was strong. However, an increase in voluntary fee waivers and lower revenues were major drags.

Net income was $71.4 million compared to the year-ago quarter’s $85.8 million.

Revenues Fall, Costs Decline, AUM Up

Third-quarter total revenues declined 10% year over year to $326.59 million. However, the top line outpaced the Zacks Consensus Estimate of $324.1 million. The year-over-year downside mainly stemmed from increased voluntary fee waivers associated with certain money market funds for those funds to maintain positive or zero net yields and lower average money market assets.

Net investment advisory fees dropped 11% year over year to $230.2 million. In addition, administrative service fees fell 7% to $76.9 million. Net service fees (other) plummeted 8% to $19.5 million.

During the September-end quarter, Federated derived 17% of its revenues from money market assets, 53% from equity, 19% from fixed-income assets, 10% from alternative/private markets and multi asset, and the remaining 1% from sources other than managed assets.

The company recorded non-operating expenses of $1.76 million in the reported quarter, down substantially from the $6.2 million earned in the prior-year quarter.

Total operating expenses slipped 9% year over year to $228.2 million. Lower distribution expenses, majorly resulting from higher voluntary yield-related fee waivers, led to this decline.

Asset Position Improves

As of Sep 30, 2021, total AUM came in at $634.1 billion, up 3% year over year. Average managed assets summed $633.1 billion, up marginally year over year.

Federated witnessed money-market assets of $413.7 billion, down 4% from the year-ago period. Further, fixed-income assets were up 22% to $97.2 billion.

Equity assets of $97.4 billion rose 21%, year over year. In addition, alternative market assets increased 22% to $22 billion.

As of Sep 30, 2021, cash and other investments were $345.1 million and total long-term debt was $102.1 million compared to $438.7 million, and $75 million, respectively, as of Dec 31, 2020.

Capital Deployment Update

During the third quarter, Federated repurchased more than 593,619 million shares of Federated class B common stock for $17.7 million.

Our Viewpoint

Federated displays substantial growth potential, supported by its diverse asset and product mix as well as a solid liquidity position. Apart from this, acquisitions are anticipated to be beneficial for the company. Though uncertain markets pose a concern, rising assets and prudent cost management will likely boost the bottom line.

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

BlackRock, Inc.’s BLK third-quarter 2021 adjusted earnings of $10.95 per share outpaced the Zacks Consensus Estimate of $9.63. The figure reflects a rise of 18.8% from the year-ago quarter’s number.

Blackstone’s BX third-quarter 2021 distributable earnings of $1.28 per share comfortably surpassed the Zacks Consensus Estimate of 93 cents. The figure reflects a significant rise from 63 cents recorded in the prior-year quarter.

SEI Investments Co.’s SEIC third-quarter 2021 earnings of 97 cents per share were in line with the Zacks Consensus Estimate. The bottom line reflected 29% growth from the prior-year quarter.

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