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Why Is Federated Investors (FII) Down 7% Since Last Earnings Report?

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A month has gone by since the last earnings report for Federated Investors (FII - Free Report) . Shares have lost about 7% 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 catalysts.

Federated Q2 Earnings Beat Estimates on High Revenues

Federated delivered a positive earnings surprise of 3.33% in second-quarter 2019. Earnings per share of 62 cents surpassed the Zacks Consensus Estimate of 60 cents. Moreover, the figure compares favorably with the prior-year quarter earnings of 59 cents.

Higher revenues and improved 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.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

Currently, Federated Investors has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Federated Investors has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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