FEDERATED HERMES, INC. (FHI)·Q1 2025 Earnings Summary

Executive Summary

• Q1 2025 EPS of $1.25 GAAP benefited from a $12.9M U.K. VAT refund (~$0.15 per share); on S&P Global’s “Primary EPS,” FHI delivered $1.10 vs $0.92 consensus, a clear EPS beat, while revenue was modestly above consensus at $423.5M vs $422.7M (beat ~$0.8M) . S&P Global estimates/actuals marked with an asterisk below (Values retrieved from S&P Global).
• Assets under management reached a record $839.8B (+1% q/q, +8% y/y), with money market AUM at a record $637.1B; average AUM also rose to $843.2B (+4.8% q/q) .
• Mix skewed slightly more toward money markets (53% of revenue vs 51% in Q4), lifting resilience but modestly capping fee rate leverage; equity flows were led by MDT strategies (Q1 MDT net sales $2.5B; pipeline of $3.9B net institutional mandates to fund into Q2) .
• Capital returns stepped up: dividend raised 9.7% to $0.34 and 3.06M shares repurchased ($120.1M) in Q1; management reiterated an active stance on buybacks and expects to renew authorization later this year .
• Key catalysts: EPS beat (helped by VAT refund), record cash franchise momentum, accelerating MDT growth, higher dividend/buyback; watch FX “Other” line volatility and April fixed-income outflows commentary for near-term sentiment .

What Went Well and What Went Wrong

What Went Well

• Record AUM and money market leadership: “For the 10th consecutive quarter, Federated Hermes reached record assets under management,” with money market AUM at $637.1B (+$6.8B q/q) .
• Equity momentum from MDT: MDT strategies posted $2.5B net sales in Q1 (more than double Q4), with ~+$700M institutional, and $1.7B of MDT wins yet to fund; MDT AUM ~$15B and performance in top decile across key large-cap strategies .
• Expense tailwind and capital returns: Operating expenses fell $22.5M q/q helped by FX and a $12.9M VAT refund; dividend lifted 9.7% to $0.34 and 3.06M shares were repurchased for $120.1M .

What Went Wrong

• Market share dip and seasonal money market dynamics: Management cited a slight market share decline to ~7.10% from ~7.22% at year-end and pointed to corporate tax dates, margin calls, and quarter-end volatility affecting institutional flows .
• April fixed-income outflows: Early Q2 commentary highlighted ~$888M of fixed-income net redemptions (mainly Total Return and High Yield) despite improving recent TR performance .
• FX volatility in “Other” line: The FX-driven swings in Other expense persisted (Q1 tailwind vs Q4 headwind); CFO pegged steady-state “Other” at about $4M but noted GBP/USD volatility remains a wildcard .

Financial Results

P&L vs prior periods

Margins (calculated from reported figures)

Note: Q1 margin uplift reflects the VAT refund reducing “Other” operating expense by $12.9M .

Revenue mix (by source)

Key KPIs

Guidance Changes

Note: No formal revenue/EPS guidance was provided; management focused on mix, flows, expense cadence, and tax framework .

Earnings Call Themes & Trends

Management Commentary

• Strategic posture: “For the 10th consecutive quarter, Federated Hermes reached record assets under management… money market funds and separate accounts continued to see strong inflows… We also saw strong demand for… MDT products” .
• Operating leverage and tax: “Operating expenses decreased by $22.5M from the prior quarter… [with] a credit up to $12.9M from a VAT refund… Q1 tax rate of 23.6%… expect the tax to be in the 25% to 28% range for 2025” .
• Money markets lens: “Market conditions remain favorable for cash as an asset class… our estimate of money market mutual fund market share… about 7.10% at the end of Q1, down slightly from about 7.22% at the end of 2024” .
• MDT traction and products: “Net sales were $2.5B in Q1, more than double the prior quarter’s $1.2B… four active MDT ETFs launched in 2024 now ~$250M” .
• Infra/energy transition expansion: “Completed the acquisition of a majority interest in… Rivington Energy… adds project development expertise and… energy transition sector experience” .

Q&A Highlights

• Money market share/flows: Slight share dip (7.10% vs 7.22% YE) attributed to corporate tax dates and institutional margin-call outflows around quarter-end; average money market AUM rose q/q (revenue-relevant) .
• Early Q2 flow color: Fixed income saw ~$888M outflows (mostly Total Return and High Yield), with improving recent performance; money fund assets rose ~+$5B post 4/15 tax date .
• FX/Other line: Steady-state around $4M; GBP/USD hedging continues; quarter-to-quarter noise likely .
• Capital allocation: Repurchased 3M+ shares; ~2.7M shares remain under current authorization; expect to remain active and to renew .
• MDT fee/mix and capacity: MDT fee rate slightly below equity average but not materially; MDT ~$15B AUM; no capacity concerns flagged; pipeline accretive to blended fee rate given equity/private skew .

Estimates Context

• Outcome: Revenue slightly above consensus; EPS materially above consensus. Difference between S&P “Primary EPS” actual ($1.10*) and GAAP ($1.25) reflects non-core items (notably a $12.9M VAT refund worth ~$0.15/sh) .
• Implication: Street models may lift near-term EPS but normalize run-rate for the “Other” line toward ~$4M and exclude one-time VAT benefit in forward estimates .

Values retrieved from S&P Global.

Key Takeaways for Investors

• Quality beat: EPS beat consensus with help from a one-time VAT refund; revenue was in line-to-slightly above, supported by higher average money market AUM .
• Cash franchise intact: Record money market AUM with supportive rate backdrop; modest q/q share dip driven by seasonal/tactical institutional factors rather than client losses .
• Equity growth engine: MDT continues to scale with strong performance and flows; institutional pipeline ($3.9B net to fund) is fee-accretive versus historical mix .
• Watch FX/Other line volatility: Management pegs steady-state around $4M, but GBP/USD swings can create quarterly noise; Q1 benefited from FX plus VAT refund .
• Capital returns re-accelerating: Dividend up ~10% and buybacks ramped; management expects to remain active and to renew authorization—potential support for shares on weakness .
• Near-term trading setup: Positive narrative (EPS beat, dividend hike, MDT momentum) offset by April fixed-income outflows and slight MM share dip; updates on intra-quarter flows and FX will drive sentiment .
• Medium-term thesis: Durable earnings power from elevated cash balances and MDT-led equity mix-shift; alt/private multi-vintage fundraising and infra expansion (Rivington) broaden growth vectors .

Appendix: Additional Quantitative Detail

AUM detail by asset class ($B)

Average managed assets ($B)

Notable items (qualitative, with references)

• VAT refund: $12.9M credit reduced “Other” operating expense (EPS impact ~$0.15) .
• Q1 revenue slightly below Q4 due to two fewer days and lower average equity mix; partially offset by higher average money market assets .
• Dividend increase: $0.34 payable May 15 to shareholders of record May 8 .
• Rivington Energy (UK) majority stake acquisition enhances energy transition/infrastructure capabilities .

All document-based facts are cited. S&P Global estimate figures are marked with an asterisk and sourced from S&P Global.