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FEDERATED HERMES, INC. (FHI)·Q3 2025 Earnings Summary

Executive Summary

  • EPS $1.34, up 26% YoY and up 16% QoQ; revenue $469.4m, up 15% YoY and up 10% QoQ; both beat Wall Street consensus (EPS $1.12*, revenue $445.3m*) driven by higher average money market and equity assets; total AUM reached a record $871.2B.
  • Money market fund assets hit a record $492.7B; revenue mix: 52% money markets, 29% equity, 11% fixed income, 6% alternatives/multi-asset, 2% other. Distribution expense rose with higher fund assets and “Other” expense increased on FX.
  • Strategic actions: tokenized UCITS money market funds via Archax and participation in a BNY Mellon/Goldman blockchain initiative; definitive agreement to acquire 80% of FCP (U.S. real estate), expected close 1H26; ~$2.1B net institutional mandates yet to fund entering Q4.
  • CFO flagged Q4 upward pressure in compensation and distribution expenses, ~$3m incremental professional fees (FCP closing costs), FX sensitivity, and planned resumption of share repurchases; Q3 effective tax rate was 24.4%.
  • Potential stock catalysts: repeated beats, record AUM, MDT franchise momentum, alt expansion (FCP) and digital/tokenization initiatives; watchpoints include FX-driven variability, rising distribution expense, and alt AUM decline from UK property trust restructuring.

What Went Well and What Went Wrong

What Went Well

  • Record AUM ($871.2B) and record money market fund assets ($492.7B) with revenue +15% YoY and +10% QoQ on higher average assets.
  • MDT strategies momentum: “MDT equity strategies had Q3 net sales of $2 billion,” with top-quartile performance across most MDT equity funds (1-, 3-, 5-, 10-year).
  • Fixed income improved: Q3 fixed income net sales of $1.7B vs Q2 net redemptions of $2.4B; record fixed income AUM $101.8B.

What Went Wrong

  • FX and “Other” expense headwinds: “Other” expense rose $14.3m QoQ on FX; CFO cited a $9.4m FX swing and $2.8m U.S. withholding tax matter impacting “Other.”
  • Equity separate accounts outflows: Q3 equity net sales slightly negative ($130m) as strong fund inflows were offset by ~$1.5B SA redemptions (client moves to passive and plan mergers).
  • Alternatives/private markets AUM down $1.7B QoQ on UK property trust restructuring and real estate SA redemptions; alt/private markets ended Q3 at $19.0B.

Financial Results

Headline Financials

MetricQ1 2025Q2 2025Q3 2025
Revenue ($USD Millions)$423.5 $424.8 $469.4
Operating Income ($USD Millions)$131.8 $117.1 $129.5
Net Income ($USD Millions)$101.1 $91.0 $104.1
Diluted EPS ($USD)$1.25 $1.16 $1.34
EBITDA ($USD Millions)$137.2*$122.7*$135.1*
EBITDA Margin (%)32.39%*28.89%*28.78%*
EBIT Margin (%)31.11%*27.56%*27.58%*
Net Income Margin (%)23.88%*21.42%*22.18%*

Values marked with * retrieved from S&P Global.

Current Quarter vs Prior Year, Prior Quarter, and Estimates (Q3 2025)

MetricQ3 2024Q2 2025Q3 2025 ActualQ3 2025 ConsensusResult
Revenue ($USD Millions)$408.5 $424.8 $469.4 $445.3*Beat
Diluted EPS ($USD)$1.06 $1.16 $1.34 $1.12*Beat

Values marked with * retrieved from S&P Global.

Segment/Revenue Mix and AUM

Revenue mix (Q3 2025):

SourceMix (%)
Money Market Assets52%
Equity29%
Fixed Income11%
Alternatives/Private Markets + Multi-Asset6%
Other (non-managed assets)2%

AUM by asset class:

Asset Class ($USD Billions)Q1 2025Q2 2025Q3 2025
Equity$80.9 $89.0 $94.7
Fixed Income$99.5 $98.7 $101.8
Alternatives/Private Markets$19.4 $20.7 $19.0
Multi-Asset$2.8 $2.9 $2.9
Money Market$637.1 $634.4 $652.8
Total AUM$839.8 $845.7 $871.2

KPIs

KPIQ1 2025Q2 2025Q3 2025
Average Managed Assets ($USD Billions)$843.2 $837.3 $859.5
Money Market Fund Assets ($USD Billions)$464.9 $468.0 $492.7
Dividend per Share ($USD)$0.31 $0.34 $0.34
Share Repurchases (Shares)3,057,542 1,547,182 20,808 (forfeitures)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Dividend per ShareQ3 2025$0.34 (Q2) $0.34 Maintained
Effective Tax RateFY 202525–28% range (Q2 call) 24.4% actual in Q3; FY25 range maintained Maintained (range)
Compensation & Related ExpenseQ4 2025No prior formal quantitative guidanceExpected to increase with sales/incentives Raised (directional)
Distribution ExpenseQ4 2025No prior formal quantitative guidanceExpected to increase with average assets Raised (directional)
Professional Service FeesQ4 2025~$2m in Q3 FCP costs Additional ~$3m expected in Q4 for FCP closing Raised
Other Expense (FX, Tax)Q4 2025FX favorable in Q2; VAT refund in Q1 FX uncertain; includes $2.8m U.S. withholding tax matter in Q3 Mixed (FX-sensitive)
Share RepurchasesQ4 2025Paused during Q3 negotiations Expect to be active again in Q4 Resumed (planned)
FCP Acquisition Funding1H 2026 CloseNot applicable~$216m cash + ~$23m Class B stock upfront; up to $92m contingent New capital allocation

No formal revenue, margin, OpEx total, or EPS guidance ranges were issued; management provided qualitative outlook by expense line and capital actions.

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 2025)Previous Mentions (Q2 2025)Current Period (Q3 2025)Trend
Digital/tokenization (money markets, blockchain)Exploring tokenized funds; Superstate sub-advisor (~$425m) Participation with BNY Mellon/Goldman blockchain; market share ~7.11% Tokenized UCITS via Archax; planned Genius Act-compliant fund; details on dividend mechanics Increasing strategic focus
MDT strategies performance and flowsMDT net sales $2.5B in Q1; strong pipeline (~$1.7B wins yet to fund) MDT net sales $3.8B in Q2; top quartile performance Q3 MDT net sales $2.0B; 7 of 8 funds top quartile 1/3/5/10yr; expanding internationally Sustained strength
Fixed income flows19 funds with net sales; SA outflows; performance improving Net redemptions $2.4B; FX/market gains offset Net sales $1.7B; record AUM $101.8B Improving
Alternatives/private marketsMultiple vehicles raising (EDL III, PEC VI, GPE Innovation II) Rivington acquisition completed; UK property trust restructuring expected UK property trust restructure executed; alt SA redemptions; launching European Real Estate Debt; FCP acquisition plan Mixed (transition + expansion)
Money market assets/market shareRecord $637.1B; share ~7.10% Record fund assets $468B; share ~7.11% Record fund assets $492.7B; separate accounts seasonally lower Strong assets; share stable
FX/“Other” expenseVAT refund lowered “Other” in Q1; FX favorable FX credits in Q2; hedging reduced FX costs increased; +$9.4m QoQ; U.S. withholding tax matter $2.8m Volatile headwind
Institutional pipeline funding~$3.9B net mandates yet to fund entering Q2 ~$1.0B yet to fund entering Q3; offsets property trust transition ~$2.1B yet to fund entering Q4; ~2/3 funding in Q4 Strengthening

Management Commentary

  • “We saw record net sales of equity funds in the third quarter, driven by continued interest in our MDT equity and alternative quantitative investment offerings.” — J. Christopher Donahue (CEO)
  • “We reached another record high at the end of Q3 for total money market assets… Market conditions remain favorable for cash as an asset class.” — CEO
  • “We are developing money market funds and share classes available in tokenized form… initial non-U.S. digital asset initiative via Archax.” — CEO
  • “We expect to use about $216 million in cash and about $23 million in FHI Class B stock for the upfront purchase price of FCP… We expect to be active again in Q4 and repurchase shares in the open market.” — CFO
  • “FX and related expense increased by $9.4 million in Q3 compared to the prior quarter… [and] $2.8 million related to a U.S. withholding tax matter.” — CFO

Q&A Highlights

  • MDT scaling and capacity: Management sees no capacity constraints and strong global RFP activity; MDT fees are slightly below average equity fee rate but accretive mix overall.
  • Expenses outlook: Q4 comp and distribution expected up with sales; professional fees +~$3m; “Other” expense FX-sensitive; systems/communications trending higher.
  • Tokenization and stablecoins: Management views tokenized distribution as incremental; discussed Genius Act constraints and collateralization mechanics; sees robust Treasury bill supply supporting growth.
  • Money market flows and market share: Institutional seasonality (taxes, margin calls) explains quarterly patterns; average assets key for revenue; share ~7.11% targeted to grow over time.
  • Institutional pipeline: ~2/3 of ~$2.1B expected to fund in Q4; alts funding over a longer tail into 1H26; equity inflows led by MDT.

Estimates Context

MetricQ1 2025Q2 2025Q3 2025
Revenue Consensus Mean ($USD Millions)Est: 422.7* / Act: 423.5 Est: 423.8* / Act: 424.8 Est: 445.3* / Act: 469.4
Primary EPS Consensus Mean ($USD)Est: 0.919* / Act: 1.25 Est: 1.069* / Act: 1.16 Est: 1.118* / Act: 1.34
Primary EPS – # of Estimates5*1*3*
Revenue – # of Estimates3*4*4*

Values marked with * retrieved from S&P Global.

Implications: FHI has delivered consecutive quarterly beats on revenue and EPS vs consensus across Q1–Q3 2025, aided by strong average assets (money markets), equity momentum (MDT), and one-time items (termination fee). Expect estimate revisions upward for revenue/EPS and potentially for distribution/comp expense run-rates given asset trends.

Key Takeaways for Investors

  • Three straight quarterly beats, record AUM ($871.2B), and record money market fund assets underpin earnings momentum; asset-sensitive revenue plus high incremental margins in distribution/comp warrant upward estimate bias.
  • MDT is a durable growth engine (net sales $2.0B in Q3; top-quartile performance), with international expansion and sizeable pipeline—supports equity fee mix accretion.
  • Fixed income turned positive net sales ($1.7B) and reached record AUM—an underappreciated driver if rate path stabilizes.
  • Alternatives/private markets are in transition (UK property trust restructure) but expanding strategically (FCP acquisition; European Real Estate Debt; Direct Lending III) for U.S. real estate entry and diversified fee streams.
  • FX is a material variable for “Other” expense; expect quarterly noise; systems/communications and professional fees likely creep up near term; comp/distribution scale with assets.
  • Digital/tokenization initiatives (Archax, BNYM/Goldman) position FHI for incremental distribution and collateralized use-cases—longer-term optionality without core fund disintermediation.
  • Trading lens: Near-term positive skew from beats/record AUM, share repurchase resumption, and alt expansion; monitor FX swings and SA equity outflows; catalysts include FCP closing milestones and MDT mandate funding pacing.