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Federated Investors, Inc. delivered a positive earnings surprise of around 6% for third-quarter 2017, marking the tenth straight quarter of earnings beat. Earnings per share of 56 cents beat the Zacks Consensus Estimate of 53 cents and improved 4% year over year.
The results were driven by lower expenses and increase in assets. Strong liquidity position was a tailwind. However, decline in revenues and assets under management (AUM) were the undermining factors.
Net income for the quarter came in at $56.4 million, up 3% year over year.
Revenues and Costs Decline
Total revenues of $278.3 million missed the Zacks Consensus Estimate of $278.4 million. Further, the figure declined 6% year over year.
The decline can mainly be attributed to decreased revenues from lower average money market assets and a reduction in revenues resulting from a change in customer relationship. It was partially offset by reduced voluntary fee waivers related to money market funds and increased revenues from higher average equity and fixed-income assets.
Net service fees increased 7% year over year to $45.6 million. However, administrative service fees were down 11% to $47.5 million. Also, net investment advisory fees declined 6% to $184.9 million.
During the reported quarter, Federated derived 40% of its revenues from money market assets and the remaining 60% from equity and fixed-income assets.
Non-operating income dropped 20% year over year to $2.3 million due to lower net investment and other income.
Total operating expenses declined 8% year over year to $189.6 million. Lower expenses primarily exhibit a decrease in compensation and related costs, resulting from drop in incentive compensation and lower distribution expenses related to fall average money market fund assets and a change in customer relationship.
Assets and AUM
Federated witnessed equity assets of $67.1 billion, up 5% year over year. Additionally, fixed-income assets grew 2% year over year to $52.8 billion.
As of Sep 30, 2017, total AUM was $363.7 billion, down slightly year over year. Average managed assets were $360.5 billion, down 1.3% from the prior-year quarter.
Money market assets decreased 2% year over year to $243.8 billion. Moreover, money market mutual fund assets came in at $177.9 billion, down 15% year over year.
As of Sep 30, 2017, cash and other investments were $328.3 million and long-term debt totaled $175 million compared with $301.1 million and $165.8 million, respectively, as of Dec 31, 2016.
Our Viewpoint
Federated reported a decent quarter. We remain confident of its diverse asset and product mix that supports the company’s growth potential. Furthermore, strategic acquisitions are expected to be favorable for the company. Additionally, with rising interest rates, lower fee waivers will continue to aid the company’s top-line performance.
BlackRock, Inc. (BLK - Free Report) reported third-quarter 2017 adjusted earnings of $5.92 per share, which outpaced the Zacks Consensus Estimate of $5.59. Also, the bottom line came in 15% higher than the year-ago quarter.
Franklin Resources Inc. (BEN - Free Report) recorded a positive earnings surprise of 5.6% in fourth-quarter fiscal 2017. Earnings of 76 cents per share beat the Zacks Consensus Estimate of 72 cents. However, results compared unfavorably with the prior-year quarter earnings of 82 cents per share.
Legg Mason Inc. reported positive earnings surprise of 16.2% in second-quarter fiscal 2018 (ended Sep 30). The company reported adjusted net income of 79 cents per share, considerably beating the Zacks Consensus Estimate of 68 cents. Further, earnings surged 29.5% from the prior-year quarter.
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Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
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Federated (FII) Q3 Earnings Beat, Revenues & Costs Decline
Federated Investors, Inc. delivered a positive earnings surprise of around 6% for third-quarter 2017, marking the tenth straight quarter of earnings beat. Earnings per share of 56 cents beat the Zacks Consensus Estimate of 53 cents and improved 4% year over year.
The results were driven by lower expenses and increase in assets. Strong liquidity position was a tailwind. However, decline in revenues and assets under management (AUM) were the undermining factors.
Net income for the quarter came in at $56.4 million, up 3% year over year.
Revenues and Costs Decline
Total revenues of $278.3 million missed the Zacks Consensus Estimate of $278.4 million. Further, the figure declined 6% year over year.
The decline can mainly be attributed to decreased revenues from lower average money market assets and a reduction in revenues resulting from a change in customer relationship. It was partially offset by reduced voluntary fee waivers related to money market funds and increased revenues from higher average equity and fixed-income assets.
Net service fees increased 7% year over year to $45.6 million. However, administrative service fees were down 11% to $47.5 million. Also, net investment advisory fees declined 6% to $184.9 million.
During the reported quarter, Federated derived 40% of its revenues from money market assets and the remaining 60% from equity and fixed-income assets.
Non-operating income dropped 20% year over year to $2.3 million due to lower net investment and other income.
Total operating expenses declined 8% year over year to $189.6 million. Lower expenses primarily exhibit a decrease in compensation and related costs, resulting from drop in incentive compensation and lower distribution expenses related to fall average money market fund assets and a change in customer relationship.
Assets and AUM
Federated witnessed equity assets of $67.1 billion, up 5% year over year. Additionally, fixed-income assets grew 2% year over year to $52.8 billion.
As of Sep 30, 2017, total AUM was $363.7 billion, down slightly year over year. Average managed assets were $360.5 billion, down 1.3% from the prior-year quarter.
Money market assets decreased 2% year over year to $243.8 billion. Moreover, money market mutual fund assets came in at $177.9 billion, down 15% year over year.
As of Sep 30, 2017, cash and other investments were $328.3 million and long-term debt totaled $175 million compared with $301.1 million and $165.8 million, respectively, as of Dec 31, 2016.
Our Viewpoint
Federated reported a decent quarter. We remain confident of its diverse asset and product mix that supports the company’s growth potential. Furthermore, strategic acquisitions are expected to be favorable for the company. Additionally, with rising interest rates, lower fee waivers will continue to aid the company’s top-line performance.
Currently, Federated Investors carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Investment Managers
BlackRock, Inc. (BLK - Free Report) reported third-quarter 2017 adjusted earnings of $5.92 per share, which outpaced the Zacks Consensus Estimate of $5.59. Also, the bottom line came in 15% higher than the year-ago quarter.
Franklin Resources Inc. (BEN - Free Report) recorded a positive earnings surprise of 5.6% in fourth-quarter fiscal 2017. Earnings of 76 cents per share beat the Zacks Consensus Estimate of 72 cents. However, results compared unfavorably with the prior-year quarter earnings of 82 cents per share.
Legg Mason Inc. reported positive earnings surprise of 16.2% in second-quarter fiscal 2018 (ended Sep 30). The company reported adjusted net income of 79 cents per share, considerably beating the Zacks Consensus Estimate of 68 cents. Further, earnings surged 29.5% from the prior-year quarter.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
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