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FH

FEDERATED HERMES, INC. (FHI)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 revenue of $424.8M and diluted EPS of $1.16; revenue rose 6% YoY and was roughly flat QoQ, while EPS declined QoQ due to the non-recurrence of a Q1 VAT refund; AUM reached a record $845.7B, with money market fund assets at a record $468.0B .
  • Results modestly beat S&P Global consensus: EPS $1.16 vs $1.07* and revenue $424.8M vs $423.8M*; EBITDA $122.7M vs $120.0M*, with performance fees and stronger investment income supporting the beat* .
  • Board declared a $0.34 dividend (maintained QoQ) and authorized an additional 5M-share repurchase program; ~1.55M shares were repurchased for $64.5M in Q2 .
  • Strategic catalysts: MDT fundamental quant equity strategies continued strong net sales and performance; participation in BNY Mellon/Goldman tokenized money market initiative positions FHI at the forefront of digital distribution, potentially enhancing liquidity product utility .

What Went Well and What Went Wrong

What Went Well

  • MDT equity strategies drove organic growth: Q2 equity net sales of $1.8B (~9% organic growth) and MDT net sales of $3.8B; seven of eight MDT equity mutual funds in top performance quartile for trailing three years .
  • Money market franchise strength: Money market fund assets reached a record $468.0B despite seasonal headwinds, with estimated market share ~7.11% and continued appeal of safety plus yield .
  • Capital return and balance sheet: $0.34 dividend declared; new 5M-share buyback authorization on top of prior program (1.1M remaining); Q2 repurchases of ~1.55M shares for $64.5M .

What Went Wrong

  • Fixed income outflows: Q2 fixed income assets fell ~$0.8B QoQ due to net redemptions of $2.4B (partly from two large public entities), offset by market/FX gains of ~$1.6B .
  • QoQ operating income decline: Operating income fell 11% QoQ to $117.1M as Q1 benefited from a $12.9M VAT refund; “Other” expense rose sequentially with lower VAT credits .
  • Seasonal money market separate account outflows and April volatility (tax outflows, margin calls linked to tariff noise) tempered near-term liquidity inflows despite favorable environment .

Financial Results

MetricQ2 2024Q1 2025Q2 2025
Total Revenue ($USD Thousands)$402,583 $423,540 $424,844
Operating Income ($USD Thousands)$40,717 $131,772 $117,084
Net Income ($USD Thousands)$21,027 $101,134 $91,000
Diluted EPS ($USD)$0.20 $1.25 $1.16
Nonoperating Income, net ($USD Thousands)$1,939 $4,269 $13,742
Income Tax Provision ($USD Thousands)$23,431 $32,165 $34,135
Operating Margin (%)10.1% (40,717/402,583) 31.1% (131,772/423,540) 27.6% (117,084/424,844)
Revenue vs EstimatesQ2 2024Q1 2025Q2 2025
Revenue Consensus Mean ($USD)$406.7M*$422.7M*$423.8M*
Actual Revenue ($USD)$402.6M $423.5M $424.8M
Surprise (%)(1.0%)*+0.2%*+0.3%*
EPS vs EstimatesQ2 2024Q1 2025Q2 2025
EPS Consensus Mean ($USD)$0.88*$0.919*$1.069*
Actual Diluted EPS ($USD)$0.20 $1.25 $1.16
Surprise (%)— (impairment skewed)+36.0%*+8.5%*
EBITDA vs EstimatesQ2 2024Q1 2025Q2 2025
EBITDA Consensus Mean ($USD)$111.0M*$111.0M*$120.0M*
Actual EBITDA ($USD)$112.6M*$137.2M*$122.7M*
Surprise (%)+1.4%*+23.6%*+2.2%*

S&P Global disclaimer: Values marked with * retrieved from S&P Global.

Segment/Mix and KPIs

Revenue Mix (Company Stated)Q1 2025Q2 2025
Money Market (%)53% 53%
Equity (%)28% 28%
Fixed Income (%)12% 12%
Alternatives/Multi-Asset (%)6% 6%
Other (%)1% 1%
Managed Assets ($USD Billions)Jun 30, 2024Mar 31, 2025Jun 30, 2025
Equity$77.9 $80.9 $89.0
Fixed Income$95.3 $99.5 $98.7
Alternatives/Private$20.1 $19.4 $20.7
Multi-Asset$2.9 $2.8 $2.9
Money Market$586.6 $637.1 $634.4
Total AUM$782.7 $839.8 $845.7

Selected Flow KPIs

CategoryQ2 2025 Net Sales/RedemptionsNotes
Equity+$1.781B net sales MDT strategies net sales +$3.8B; 7/8 MDT funds top-quartile trailing 3-year
Fixed Income($2.385B) net redemptions Offset by ~$1.6B market/FX gains; two large public entities drove outflows
Alternatives/Private+$231M net sales FX impact +$1.1B; active fundraising in EDL III, PEC VI, Innovation II

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Effective Tax RateFY 202525%–28% (Q1 call) 25%–28% (Q2 call) Maintained
Systems & Communications ExpenseQ3 2025“Up a couple million next quarter” (Q1 outlook) “Up a couple million next quarter” (Q2 CFO) Maintained
Compensation ExpenseQ3 2025Seasonally lower post-Q1; modest increase expected “Up a couple million next quarter” (subject to incentives) Maintained
Distribution ExpenseQ3 2025Flows with money market assets Expected higher payouts with MMF asset growth Raised (directional)
DividendQ2 payout$0.34 declared in Q1 (raised from $0.31) $0.34 declared Maintained
Share Repurchase AuthorizationOngoing5M shares authorized Oct 2024 (1.1M remaining) New 5M shares authorized with no expiration Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024, Q1 2025)Current Period (Q2 2025)Trend
Digital assets/tokenizationEarly innings on active ETFs; strong liquidity franchise (Q4 PR) Participation with BNY Mellon/Goldman blockchain recordkeeping for MMFs; sub-advisor for private tokenized fund (~$425M) Expanding initiatives and partnerships
Macro/tariffs & seasonal flowsQ1: April tax/margin call pressure; tariff noise noted in Q&A Q2: April was weak (taxes, margin calls after tariff announcements), May/June recovered; MM separate accounts seasonally down Seasonal normalization after April stress
Equity product performance (MDT)Q1: MDT net sales $2.5B; pipeline accretive to fee rate Q2: MDT net sales $3.8B; 7/8 funds top quartile; capacity not an issue Strengthening sales/performance momentum
Alternatives fundraisingQ1: EDL III, PEC VI, Innovation II in market; Rivington acquisition Q2: Continued closes in EDL III ($450M to date), PEC VI ($114M first close), Innovation II (~$110M) Active pipeline; FX boosted AUM
Regulatory (stablecoins)Q1: FX hedging and VAT impacts; limited regulation specifics Q2: “Genius Act” implications; stablecoins cannot pay yield; MMFs as on-chain collateral Clarified regulatory tailwinds for MMFs
Regional trendsQ1: Asia trips, interest in MDT/cash/trade finance/Asia ex-Japan mandates Q2: Asia ex-Japan Equity among top sellers; direct lending in Europe; UK property trust restructuring Broader international traction

Management Commentary

  • “We ended Q2 with record assets under management of $846 billion, led by gains from our equity strategies… MDT equity strategies had net sales of $3.8 billion in the second quarter” — Chris Donahue (CEO) .
  • “This is a significant step towards enhancing the utility and transferability of existing money market fund shares… our participation highlights our commitment to the digital asset space” — Chris Donahue (CEO) on the BNY Mellon/Goldman initiative .
  • “The Q2 effective tax rate was 26.1%. We expect the rate to be in the 25% to 28% range for 2025… cash and investments were $607 million” — Tom Donahue (CFO) .
  • “This is another way of distributing our product… turning it into a ledger product that has better transferability than a typical money market fund share does” — Deborah Cunningham (CIO – Money Markets) .

Q&A Highlights

  • Tokenization and stablecoins: Management views tokenized MMFs as incremental distribution; stablecoins cannot pay yields under current frameworks; MMFs expected to supply on-chain collateral; partnerships with BNY Mellon/Goldman and sub-advisory roles discussed .
  • Expense outlook: FX hedge notional reduced; systems & communications and compensation to rise modestly; distribution expense to rise with MMF asset growth .
  • M&A and capital return: Private markets acquisitions prioritized as highest and best use of cash; continued buybacks with new 5M authorization; active deal pipeline .
  • MDT capacity and fee rate: No capacity constraints; MDT fee rates slightly below equity average but accretive mix overall .

Estimates Context

  • Q2 2025 beat: EPS $1.16 vs $1.069*; revenue $424.8M vs $423.8M*; EBITDA $122.7M vs $120.0M* .
  • Q1 2025 beat: EPS $1.25 vs $0.919*; revenue $423.5M vs $422.7M* .
  • Q2 2024 variance: EPS $0.20 vs $0.88* due to a $66.3M intangible impairment; revenue modestly below consensus* .
    S&P Global disclaimer: Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Modest beat on EPS and revenue with record AUM; near-term catalysts include MDT momentum and digital tokenization initiatives that may enhance MMF distribution utility .
  • Equity growth is broad-based (MDT and Asia ex-Japan) with strong performance, supporting fee accretion despite fixed income outflows; capacity not a constraint per management .
  • Liquidity business remains robust; MMF assets at record levels and expected distribution payouts to rise alongside assets, though seasonal patterns can cause volatility .
  • Expense trajectory: expect modest increases in systems/communications and compensation; tax rate guided to 25–28% for FY25—modeling should reflect these pressures and normalized “Other” expense without VAT credits .
  • Capital returns remain active: $0.34 dividend maintained and new 5M-share buyback authorization; continued opportunistic repurchases a potential EPS support .
  • Alternatives fundraising continues (EDL III, PEC VI, Innovation II); FX notably supports reported AUM; watch UK property trust restructuring impacts in Q3 .
  • Estimates may drift higher given MDT flows, investment income, and tokenization partnerships; monitor performance fees and carried interest variability when modeling* .