Yahoo Finance Federated Hermes (FHI) Dips Despite Q4 Earnings Beat, Costs Rise
Federated Hermes, Inc.’s FHI fourth-quarter 2022 adjusted earnings per share of 90 cents handily outpaced the Zacks Consensus Estimate of 75 cents. In the same period last year, the company reported earnings per share of 71 cents.
Increases in net investment advisory fees and net other service fees were the major driving factors. However, reduced net administrative service fees and elevated expense levels were the headwinds. Probably because of the negatives, shares of the company lost 2% in after-market trading despite better-than-expected earnings.
After considering a non-cash expense related to the impairment of an intangible asset associated with the 2018 acquisition of Hermes Fund Managers Limited, net income (GAAP basis) was $56.5 million or 63 cents per share compared with $68.6 million or 71 cents in the year-ago quarter.
Earnings per share of $2.65 for 2022 missed the Zacks Consensus Estimate of $2.77. Last year, the company reported earnings per share of $2.75. Net income was $239.5 million, down 11% from the year-ago period.
Revenues Improve, Operating Expenses Rise
Quarterly total revenues improved 16% year over year to $373.9 million. However, the top line missed the Zacks Consensus Estimate of $381.4 million.
Revenues for 2022 improved 11% year over year to $1.45 billion. The top line was in line with the Zacks Consensus Estimate.
Quarterly net investment advisory fees grew 15% year over year to $256.9 million. Net other service fees surged substantially to $41.1 million. However, net administrative service fees fell 2% to $75.8 million.
In the reported quarter, Federated Hermes derived 46% of its total revenues from money market assets, 33% from equity, 13% from fixed-income assets, 7% from alternative/private markets and multi-asset, and the remaining 1% from sources other than managed assets.
Total operating expenses jumped 33% year over year to $310.2 million. The rise resulted primarily from significantly higher distribution and other expenses.
Federated Hermes recorded net non-operating income of $11.4 million, up significantly from $3 million in the prior-year quarter.
As of Dec 31, 2022, cash and other investments were $521.8 million, and total long-term debt was $347.6 million compared with $426.7 million and $223.4 million, respectively, as of Dec 31, 2021.
Asset Position Decent
As of Dec 31, 2022, total managed assets were $668.9 billion, up marginally year over year.
Federated Hermes witnessed money-market assets of $476.8 billion, up 6% year over year. Fixed-income assets declined 11% to $86.7 billion. Equity assets of $81.5 billion plunged 16% from the prior-year quarter. In addition, alternative/private market assets decreased 9% to $20.8 billion.
Average managed assets totaled $633.6 billion, down 1% year over year.
Share Repurchase Update
The company purchased 0.33 million shares of its class B common stock for $8.4 million in the reported quarter.
Our Viewpoint
Federated Hermes displays substantial growth potential, supported by its diverse asset and product mix, and a solid liquidity position. Acquisitions are also anticipated to be beneficial for FHI. Though uncertain markets and mounting costs pose concerns, a solid AUM balance will likely aid its financials.
Federated Hermes, Inc. Price, Consensus and EPS Surprise
Federated Hermes, Inc. price-consensus-eps-surprise-chart | Federated Hermes, Inc. Quote
Currently, Federated Hermes carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Asset Managers
BlackRock, Inc.’s BLK fourth-quarter 2022 adjusted earnings of $8.93 per share surpassed the Zacks Consensus Estimate of $7.99. The figure reflects a decrease of 16.4% from the year-ago quarter.
BLK’s results benefited from a decline in expenses. However, lower revenues and assets under management balance were the major headwinds.
Invesco’s IVZ fourth-quarter 2022 adjusted earnings of 39 cents per share surpassed the Zacks Consensus Estimate of 36 cents. The bottom line, however, plunged 54.7% from the prior-year quarter. Our estimate for earnings was 33 cents.
IVZ’s results benefited from a decline in operating expenses. However, lower assets under management balance and long-term outflows hurt revenues.
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