Federated (FII) Q2 Earnings Meet Estimates, Revenues Down

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Federated Investors, Inc.FII reported adjusted second-quarter 2018 earnings per share of 59 cents, excluding certain one-time items. The reported figure came in line with the Zacks Consensus Estimate.

Lower revenues and reduced equity assets affected the company's results. However, lower expenses and improved assets under management (AUM) were positives.

Including non-recurring items, net income for the quarter came in at $38.8 million or 38 cents per share compared with $53.5 million or 53 cents reported in the year-ago quarter.

Downtrend in Revenues, Costs Down

Total revenues in the second quarter declined 6% year over year to $256 million. Moreover, the figure missed the Zacks Consensus Estimate of $258.9 million.

The year-over-year fall in revenues was mainly due to the adoption of new revenue recognition accounting principle. Further, higher voluntary fee waivers for certain money market funds for competitive purposes and a change in the mix of average money market assets unfavorably impacted revenues.

Also, net investment advisory fees dropped 6% year over year to $168.1 million. In addition, net service fees (other) marked a 17% decrease, amounting to $39.5 million. However, administrative service fees were up 6% year over year to $48.4 million.

During the reported quarter, Federated derived 39% of its revenues from money market assets, and remaining 61% from equity and fixed-income assets.

Furthermore, due to fall in net investment income and higher debt expenses, the company recorded non-operating expenses of $29 million in the quarter compared with income of $2.7 million posted in the year-ago quarter.

Total operating expenses dipped 7% year over year to $175.2 million. The fall primarily underscores drop in distribution expenses associated with change in average money market fund assets mix and the adoption of the new revenue-recognition accounting standard.

Steady Asset Position

As of Mar 31, 2018, total AUM was $379.7 billion, up 5% year over year. Average managed assets were $386 billion, up 7% from the prior-year quarter.

Federated witnessed equity assets of $62.9 billion, down 4% year over year. Also, money market mutual fund assets came in at $172.7 billion, slightly down year over year.

Nevertheless, fixed-income assets grew 17% year over year to $61.5 billion. Additionally, money market assets increased 5% year over year to $255.2 billion.

As of Jun 30, 2018, cash and other investments were $417.6 million and total long-term debt totaled $178 million, compared with $369.5 million and $170 million, respectively, as of Dec 31, 2017.

Capital Deployment Update

During the June-end quarter, the company repurchased 714,865 shares of Federated class B common stock, for $17.2 million.

Our Viewpoint

Federated displays substantial growth potential on the back of 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. Moreover, lower expenses could aid the company's bottom-line performance, moving ahead. Nonetheless, lower revenues remain a concern.

Federated Investors, Inc. Price, Consensus and EPS Surprise

Federated Investors, Inc. Price, Consensus and EPS Surprise | 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

BlackRock's BLK second-quarter 2018 adjusted earnings of $6.66 per share outpaced the Zacks Consensus Estimate of $6.60. Also, the bottom line came in 28% higher than the year-ago quarter. Results benefited from an improvement in revenues, rise in AUM and steady long-term inflows. However, an increase in operating expenses acted as a headwind.

SEI Investments Co.'s SEIC Q2 earnings of 75 cents per share were in line with the Zacks Consensus Estimate. Also, the figure grew 32% from the prior-year quarter. An increase in total revenues, partly offset by higher operating expenses, aided the company's results. Also, AUM witnessed solid growth.

T. Rowe Price Group, Inc. TROW reported second-quarter adjusted earnings per share of $1.87, improving 46.1% from the year-ago figure of $1.28. The Zacks Consensus Estimate was $1.80. Results were driven by higher revenues and assets under management (AUM). However, escalating expenses were a concern.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: TROW , FII , BLK , SEIC

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