On July 25, 2024, Federated Hermes Inc (FHI, Financial) released its 8-K filing for the second quarter of 2024. Federated Hermes, a global leader in active, responsible investing, reported earnings per diluted share (EPS) of $0.20, significantly below the analyst estimate of $0.89. The company also reported total revenue of $402.58 million, slightly above the estimated $400.36 million.
Federated Hermes provides asset management services for institutional and individual investors. The firm had $782.7 billion in managed assets at the end of June 2024, composed of equity (10%), multi-asset (less than 1%), fixed-income (12%), alternative (3%), and money market (74%) funds. The firm's cash-management operations are expected to generate around 47% of Federated's revenue this year, compared with 29%, 13%, and 11%, respectively, for the firm's equity, fixed-income, and alternatives/multi-asset operations. From a channel perspective, the company's products are distributed via trust banks, wealth managers and retail broker/dealers (64% of AUM), institutional investors (28%), and international clients (8%).
Performance and Challenges
Federated Hermes Inc (FHI, Financial) reported a net income of $21.0 million for Q2 2024, a sharp decline from $72.2 million in Q2 2023. This significant drop was primarily due to a $66.3 million non-cash expense related to the impairment of an indefinite-lived intangible asset. This impairment charge resulted in a ($0.76) per diluted share impact on the EPS.
The company's revenue decreased by $30.6 million or 7% year-over-year, primarily due to a decrease in carried interest and lower average equity assets. However, these decreases were partially offset by an increase in revenue from higher average money market assets.
Financial Achievements
Despite the challenges, Federated Hermes achieved a record total managed assets of $782.7 billion as of June 30, 2024, up 11% from $704.0 billion at the same time last year. Money market assets also reached a record $586.6 billion, up 15% year-over-year.
Money market asset increases once again drove Federated Hermes to record total assets under management, as our liquidity products continued to offer excellent cash management services and attractive yields," said J. Christopher Donahue, president and chief executive officer.
Income Statement Highlights
| Metric | Q2 2024 | Q2 2023 | % Change |
|---|---|---|---|
| Total Revenue | $402.58 million | $433.23 million | (7%) |
| Operating Expenses | $361.87 million | $334.84 million | 8% |
| Net Income | $21.03 million | $72.18 million | (71%) |
| Earnings Per Share | $0.20 | $0.81 | (75%) |
Analysis
The significant decline in net income and EPS can be attributed to the non-cash intangible asset impairment charge. However, the record levels of total managed assets and money market assets indicate strong underlying business fundamentals. The increase in money market assets is particularly noteworthy as it highlights the firm's ability to attract and retain liquidity-focused investors.
Federated Hermes' diversified asset base and strong distribution channels position it well for future growth, despite the current challenges. The company's focus on providing a range of investment solutions, including equity, fixed-income, and alternative strategies, ensures it can meet the varying needs of its clients.
For more detailed insights and analysis, visit GuruFocus.com.
Explore the complete 8-K earnings release (here) from Federated Hermes Inc for further details.
