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FEDERATED HERMES, INC. (FHI)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered solid operating results: revenue up 4% q/q to $424.7MM, EPS $1.04 vs $1.06 in Q3 and $0.96 y/y; record AUM reached $829.6B driven by money market inflows and resilient fixed-income franchise .
  • Mix shift continued toward liquidity: revenue sourced 51% from money markets; long‑term assets contributed 48% (29% equity, 12% fixed income, 7% alternatives/multi‑asset), broadly consistent with recent quarters .
  • Nonoperating income fell q/q and y/y on weaker investment marks; operating expenses rose on FX and higher advertising/distribution, modestly compressing margins vs Q3; tax rate was 25.4% and 2025 guided to 26–28% .
  • Board declared a $0.31 quarterly dividend; buybacks totaled 552,533 shares ($22.1MM) in Q4; management reiterated intent to remain active on repurchases in 2025, citing undervaluation .
  • Near‑term Q1 headwinds: fewer calendar days expected to reduce revenue by ~$9.2MM and distribution expense by ~$2.0MM; compensation to be seasonally higher by ~$7MM; nevertheless, liquidity yields and MDT equity momentum remain key stock catalysts .

What Went Well and What Went Wrong

What Went Well

  • Record AUM of $829.6B with money market assets at $630.3B (+6% q/q); liquidity offerings provided “exceptional cash management resources” amid higher‑for‑longer rates .
  • Strong MDT equity momentum: MDT strategies reached ~$13B AUM (+70% y/y) with $1.2B Q4 net sales; four active MDT ETFs launched in H2 2024, accumulating ~$424MM by Jan 24 .
  • Fixed income resilience: record $100.2B in Q3 and $98.1B in Q4; Q4 fund net sales led by Total Return Bond and Government Ultrashort; market positioning across multi‑sector/core plus supported flows .

Management quotes:

  • “Record assets at year‑end were driven by another quarter of money market asset increases…” — CEO J. Christopher Donahue .
  • “Market sentiment… indicates a higher for longer view, which is conducive for growth in money market strategies.” — Management on rates and liquidity .

What Went Wrong

  • Equity and alternatives softness: equity AUM fell $4.2B q/q on net redemptions and FX; alternatives/private markets AUM declined $1.8B q/q on FX and net outflows, including ~$547MM tied to a PM departure .
  • Nonoperating income dropped: total nonoperating income fell to $1.9MM vs $10.9MM in Q3 and $14.7MM y/y due to weaker investment marks .
  • FX and other expense pressure: operating expenses rose 6% q/q; other expense increased primarily from FX fluctuations; advertising spend also higher .

Financial Results

Quarterly Progression

MetricQ2 2024Q3 2024Q4 2024
Total Revenue ($USD Thousands)402,583 408,456 424,683
Operating Income ($USD Thousands)40,717 111,742 110,427
Operating Margin %10.1% (calc from above) 27.4% (calc) 26.0% (calc)
Nonoperating Income (Expenses), net ($USD Thousands)1,939 10,861 1,904
Income before taxes ($USD Thousands)42,656 122,603 112,331
Income tax provision ($USD Thousands)23,431 32,262 28,477
Net Income ($USD Thousands)21,027 87,538 84,716
Net Income Margin %5.2% (calc) 21.4% (calc) 19.9% (calc)
Diluted EPS ($)$0.20 $1.06 $1.04

Note: Margins are calculated from reported revenue and income figures.

Year-over-Year (Q4)

MetricQ4 2023Q4 2024
Total Revenue ($USD Thousands)391,497 424,683
Operating Income ($USD Thousands)102,570 110,427
Diluted EPS ($)$0.96 $1.04
Net Income ($USD Thousands)82,178 84,716

Segment Revenue Mix (% of total revenue)

PeriodMoney MarketEquity (Long‑Term)Fixed Income (Long‑Term)Alternatives & Multi‑Asset (Long‑Term)Other
Q2 202452% 29% 12% 6% 1%
Q3 202451% 29% 12% 7% 1%
Q4 202451% 29% 12% 7% 1%

KPIs and AUM

KPIQ2 2024Q3 2024Q4 2024
Total Managed Assets ($USD Millions)782,729 800,451 829,578
Money Market Assets ($USD Millions)586,647 593,030 630,349
Long‑Term Assets ($USD Millions)196,082 207,421 199,229
Money Market Fund Assets ($USD Millions)425,627 440,397 461,720
Avg. Managed Assets ($USD Millions, quarter)779,574 793,452 804,358
Dividend Declared per Share ($)$1.31 (Q2 incl. $1.00 special) $0.31 $0.31
Shares Repurchased (units/$)1,559,200; $47.5MM (Q2) 818,164; $26.9MM (Q3) 552,533; $22.1MM (Q4)
Carried Interest & Perf. Fees ($USD Millions, quarter)n/a$3.5 $4.8 (≈$3.2 offset in comp)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Effective Tax RateFY 202526–28% (prior range) 26–28% Maintained
Q1 Seasonality – Revenue ImpactQ1 2025n/a~($9.2MM) vs Q4 avg assets due to fewer days New detail
Q1 Seasonality – Distribution ExpenseQ1 2025n/a~($2.0MM) vs Q4 due to fewer days New detail
Compensation & Payroll TaxesQ1 2025n/a+~$7MM seasonally higher New detail
Systems & Communications Spend2025 (each quarter)n/aStep‑up of ~+$3MM per quarter (market data/tech) New detail
DividendFeb 14, 2025$0.31 (recurring) $0.31 declared Maintained
Share Repurchases2025Active; perceived undervaluation Expect continued buybacks in 2025 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4 2024)Trend
Money market “higher‑for‑longer” ratesLiquidity yields attractive; record money market assets; Fed cut in Sep with continued attractiveness vs deposits Management sees higher‑for‑longer supportive of cash as an asset class; retail/institutional dynamics favorable Positive, sustained tailwind
Market share & flowsQ3 end‑of‑quarter SOFR spike caused some direct market shifts; market share ~7.32% Market share ~7.22%; volatility around year‑end; no client losses; Q1 mutual fund flows tracking better than typical seasonality Stable to improving
MDT equity strategiesQ3: expanded product set (4 active ETFs + 1 CIT); accelerating net sales MDT AUM ~$13B (+70% y/y); $1.2B Q4 net sales; continued ETF traction Strengthening momentum
Fixed income flowsQ3 record $100.2B; net sales (funds + SMAs) improved, multi‑sector/core plus wins Q4 fund net sales led by Total Return Bond, Government Ultrashort; SMAs had net redemptions from a large public entity Mixed near‑term; structurally constructive
Alternatives fundraisingQ3: First close EDL‑3; pipeline for GPE Innovation II; real estate debt fund planned EDL‑3 closed ~$350MM (target $750MM); GPE Innovation II ~$110MM (target $300MM); RE debt fund targeting $300MM; PEC VI targeting $500MM Active pipeline; FX headwinds
SEC money market reformOctober rule changes; funds resilient; prime assets up y/y No shareholder departures in institutional prime/muni; daily monitoring framework; fee triggers unlikely Well‑managed transition
FX & expense hedgingQ3: FX gains reduced “other expense”; severance in London ($3.7MM) Q4: FX increased “other expense” by ~$13.8MM; hedging offsets over time FX headwinds; hedged
Active ETFsQ3 active ETFs >$500MM; plan to expand Continued traction esp. Total Return Bond & Strategic Dividend; MDT ETFs building Growing distribution channel

Management Commentary

  • “Federated Hermes’ record assets at year‑end were driven by another quarter of money market asset increases…” — J. Christopher Donahue (CEO) .
  • “Market sentiment around short‑term interest rates indicates a higher‑for‑longer view, which is conducive for growth in money market strategies.” — Management remarks .
  • “If you have a 5 handle, it’s total Nirvana… 4 handle, delightful… 3 handle, clients are still sanguine…” — On liquidity yields .
  • “We expect to buy in 2025… price is still significantly undervalued.” — On share repurchases .
  • “We expect to have a step up [systems and communications]… about $3MM on a quarterly basis… market data and technology spending.” — On OpEx trajectory .
  • “We began 2025 with about $3.7B in net institutional mandates yet to fund… across equity, private markets and fixed income.” — On pipeline visibility .

Q&A Highlights

  • Money market flows and market share: Year‑end lumpy flows and SOFR dynamics; market share ~7.22%; no client losses; Q1 flows tracking better than seasonal norms .
  • Capital allocation: Management views shares undervalued; intends continued buybacks in 2025; ended year with $641MM cash/investments ($588MM ex‑NCI) .
  • Rate backdrop: Higher‑for‑longer supportive of liquidity; retail trade remains strong; institutional flows could pick up as curve evolves .
  • Expense guide: Q1 seasonality reduces revenue ($9.2MM) and distribution ($2.0MM); compensation +~$7MM; 2025 tax rate 26–28% .
  • Alternatives focus: Building scale in infrastructure/US real estate; active fundraising in direct lending (EDL‑3), GPE Innovation II, PEC VI; balanced realizations and re‑ups .

Estimates Context

  • We attempted to retrieve Wall Street consensus estimates (EPS/revenue) from S&P Global for Q4 2024, Q3 2024, and Q2 2024; data was unavailable due to request limits. Therefore, beat/miss vs consensus cannot be assessed at this time [GetEstimates attempt error].
  • Implication: With no consensus comparison, investors should anchor on sequential and y/y trends, mix shifts, and management’s Q1 seasonality guidance to frame near‑term revisions.

Key Takeaways for Investors

  • Liquidity remains the core earnings driver: 51% of revenue sourced from money markets; record money market AUM at $630.3B provides durable fee base in a supportive rate backdrop .
  • MDT equity continues to be a bright spot: strong net sales and expanding ETF lineup should aid equity revenue despite headline net redemptions and FX .
  • Watch FX and nonoperating swings: Q4 nonoperating income fell sharply; FX lifted “other” expense; margin variability likely near‑term .
  • Near‑term Q1 headwinds are transitory: fewer days and seasonal comp/withholding create ~($9.2MM) revenue and +$7MM comp impacts; investors should look through to normalized run‑rate .
  • Alternatives pipeline is real but pacing matters: EDL‑3, GPE Innovation II, RE debt, PEC VI collectively target >$1.5B; FX and realizations can mask underlying fundraising progress .
  • Capital return steady: $0.31 dividend maintained; buybacks remain an active lever given management’s undervaluation view .
  • Narrative to move the stock: Sustained liquidity AUM growth + MDT traction vs FX/nonop noise and Q1 seasonality; incremental wins in fixed income and alt closes are potential upside catalysts .

Appendices (Selected Data References)

  • Q4 Income Statement detail: revenue/expense lines and EPS .
  • AUM tables by asset class/product (Q4 and prior quarters) .
  • Q4 press release highlights and dividend/buyback details .
  • Q4 call transcript: seasonality, tax, expense, pipeline, and strategy .