It has been about a month since the last earnings report for Federated Investors (FII - Free Report) . Shares have lost about 8.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Federated Investors due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Federated Q1 Earnings Lag Estimates, AUM Improves
Federated delivered a negative earnings surprise of 5.3% in first-quarter 2019. Earnings per share of 54 cents lagged the Zacks Consensus Estimate of 57 cents. Moreover, the figure compared unfavorably with the prior-year quarter earnings of 60 cents.
Elevated expenses were on the downside. However, higher revenues and improved AUM were positives. Notably, completion of acquisition of Hermes Fund Managers Limited (Hermes), beginning Jul 1, 2018, drove the quarterly results.
Net income for the reported quarter came in at $54.5 million compared with $60.3 million witnessed in the year-ago quarter.
Revenues Rise, Costs Escalate
Total revenues in the first quarter climbed 16% year over year to $307.1 million. However, the revenue figure slightly lagged the Zacks Consensus Estimate of $307.8 million.
The year-over-year upswing mainly stemmed from the consolidation of Hermes' revenues and higher average money market assets, partly muted by softer revenues from lower average equity and fixed-income assets.
Also, net investment advisory fees jumped 21% year over year to $211.2 million. In addition, administrative service fees were up 10% to $54.1 million. Further, net service fees (other) marked a 3% rise, amounting to $41.7 million.
During the reported 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.
Furthermore, due to rise in net investment income, partly offset by higher debt expenses, the company recorded non-operating income of $1.6 million in the quarter against expense of $0.8 million witnessed in the prior-year quarter.
Total operating expenses escalated 28% year over year to $236.2 million. The rise was primarily due to the consolidation of Hermes' expenses.
Steady Asset Position
As of Mar 31, 2019, total AUM was a record $484.9 billion, up 24% year over year. Average managed assets were $475.4 billion, up 19% from the prior-year quarter.
Federated witnessed equity assets of $80.2 billion, up 36% year over year. Also, money market mutual fund assets came in at $214.8 billion, up 18%.
Further, fixed-income assets grew 3% year over year to $64.1 billion. Additionally, money-market assets increased 20% to $318.4 billion.
As of Mar 31, 2019, cash and other investments were $162.1 million and total long-term debt totaled $130 million compared with $190.5 million and $135 million, respectively, as of Dec 31, 2018.
Capital Deployment Update
During the March-ended quarter, the company repurchased 60,833 shares of Federated class B common stock, for $1.5 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, Federated Investors has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Federated Investors has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.