Federated Hermes, Inc. (FHI) Bundle
Understanding Federated Hermes, Inc. (FHI) Revenue Streams
Understanding Federated Hermes, Inc.’s Revenue Streams
The financial health of Federated Hermes, Inc. can be assessed through its revenue streams, which are derived from various products and services. For the nine months ended September 30, 2024, the total revenue was $1,207,410,000, compared to $1,218,077,000 for the same period in 2023, indicating a slight decline.
Breakdown of Primary Revenue Sources
Federated Hermes generates revenue from multiple offerings, which include:
- Investment Advisory Fees: $274,621,000 (Q3 2024) vs. $276,771,000 (Q3 2023)
- Administrative Service Fees: $97,687,000 (Q3 2024) vs. $88,023,000 (Q3 2023)
- Distribution Fees: $29,193,000 (Q3 2024) vs. $31,466,000 (Q3 2023)
- Other Service Fees: $6,955,000 (Q3 2024) vs. $6,396,000 (Q3 2023)
Year-over-Year Revenue Growth Rate
Year-over-year revenue growth reflects the following trends:
- Q3 2024 revenue increased by $5,800,000 compared to Q3 2023, a growth rate of approximately 1.44%.
- For the nine months ended September 30, 2024, revenue decreased by $10,667,000, representing a decline of 0.88% compared to the same period in 2023.
Contribution of Different Business Segments to Overall Revenue
The following table represents the revenue contribution from various business segments for the three and nine months ended September 30, 2024:
| Segment | Q3 2024 Revenue ($) | Q3 2023 Revenue ($) | 9M 2024 Revenue ($) | 9M 2023 Revenue ($) |
|---|---|---|---|---|
| Federated Hermes Funds | 344,795,000 | 337,203,000 | 1,014,383,000 | 1,021,748,000 |
| Separate Accounts | 58,869,000 | 61,098,000 | 179,883,000 | 184,106,000 |
| Other | 4,792,000 | 4,355,000 | 13,144,000 | 12,223,000 |
| Total Revenue | 408,456,000 | 402,656,000 | 1,207,410,000 | 1,218,077,000 |
Analysis of Significant Changes in Revenue Streams
Significant changes in revenue streams include:
- Money market revenue increased by $60,300,000 for the nine months ended September 30, 2024, compared to the same period in 2023.
- Carried interest revenue decreased by $47,000,000 over the same period, impacting overall revenue negatively.
- Equity revenue also saw a decline of $20,300,000 due to lower average assets.
The ratio of revenue to average managed assets was 0.20% for the nine-month period ended September 30, 2024, down from 0.23% in 2023, reflecting a decrease primarily due to reduced carried interest and lower revenue from average equity assets.
A Deep Dive into Federated Hermes, Inc. (FHI) Profitability
Profitability Metrics
Gross Profit Margin: For the three months ended September 30, 2024, the gross profit margin was approximately 27.4%, compared to 25.7% for the same period in 2023. This indicates an improvement in gross profit efficiency.
Operating Profit Margin: The operating profit for the three months ended September 30, 2024 was $111.7 million, yielding an operating profit margin of 27.3%. This was an increase from 25.2% for the same period in 2023.
Net Profit Margin: The net profit margin for the three months ended September 30, 2024 was 21.4%, compared to 18.6% in the prior year, reflecting improved overall profitability.
Trends in Profitability Over Time
In the nine-month period ended September 30, 2024, net income was $183.6 million, down from $216.8 million in the same period of 2023. The decrease in net income was primarily attributed to fluctuations in revenues and increased operating expenses.
Year-over-year, the gross profit margin has shown a positive trend, moving from 25.7% in Q3 2023 to 27.4% in Q3 2024. The operating profit margin also increased from 25.2% to 27.3%, highlighting improved cost management.
Comparison of Profitability Ratios with Industry Averages
| Metric | Federated Hermes (FHI) | Industry Average |
|---|---|---|
| Gross Profit Margin | 27.4% | 25.0% |
| Operating Profit Margin | 27.3% | 24.5% |
| Net Profit Margin | 21.4% | 18.0% |
Analysis of Operational Efficiency
For the nine months ended September 30, 2024, total operating expenses rose to $956.4 million, compared to $933.1 million in the same period in 2023. The increase was primarily driven by higher costs associated with technology initiatives and intangible asset-related expenses.
The decrease in compensation and related expenses by $32.6 million indicates effective cost management, particularly in relation to carried interest paid as compensation.
The effective tax rate for the nine-month period ended September 30, 2024 was 31.5%, an increase from 25.6% in the previous year, influenced by a valuation allowance on foreign deferred tax assets.
Debt vs. Equity: How Federated Hermes, Inc. (FHI) Finances Its Growth
Debt vs. Equity: How Federated Hermes, Inc. Finances Its Growth
Debt Levels
As of September 30, 2024, Federated Hermes had total long-term debt of $348.0 million, net of unamortized issuance costs of $2.0 million. This was primarily from unsecured senior notes issued on March 17, 2022, at a fixed interest rate of 3.29%, payable semiannually.
There are no reported short-term debts as of the same date. The total liquid assets, which include cash and cash equivalents, amounted to $631.1 million.
Debt-to-Equity Ratio
The debt-to-equity ratio as of September 30, 2024, was calculated at 0.32. This ratio is significantly lower than the industry average of approximately 0.75, indicating a conservative approach to leverage.
Recent Debt Issuances and Credit Ratings
Federated Hermes issued unsecured senior notes totaling $350 million in March 2022. These notes will mature on March 17, 2032. The company maintains a strong credit profile, although specific credit ratings were not disclosed in the latest reports.
Balancing Debt Financing and Equity Funding
Federated Hermes balances its financing strategy by utilizing both debt and equity. The company has opted for share repurchases, having repurchased approximately 3.5 million shares for $111.5 million during the nine months ended September 30, 2024. This indicates a preference towards equity management alongside debt obligations.
| Financial Metric | Amount |
|---|---|
| Long-term Debt | $348.0 million |
| Short-term Debt | $0.0 million |
| Liquid Assets | $631.1 million |
| Debt-to-Equity Ratio | 0.32 |
| Industry Average Debt-to-Equity Ratio | 0.75 |
| Unsecured Senior Notes Issued | $350 million |
| Interest Rate on Notes | 3.29% |
| Shares Repurchased | 3.5 million shares |
| Cost of Share Repurchase | $111.5 million |
Assessing Federated Hermes, Inc. (FHI) Liquidity
Assessing Federated Hermes, Inc. (FHI) Liquidity
Current Assets: As of September 30, 2024, total current assets amounted to $631.1 million, compared to $656.4 million at December 31, 2023.
Current Liabilities: Current liabilities totaled $263.1 million as of September 30, 2024, down from $287.3 million at December 31, 2023.
Current and Quick Ratios
The current ratio, calculated as current assets divided by current liabilities, is approximately 2.40 for FHI as of September 30, 2024 (($631.1 million / $263.1 million)). The quick ratio, which excludes inventory from current assets, is also strong, reflecting a robust liquidity position.
Analysis of Working Capital Trends
Working capital, defined as current assets minus current liabilities, stands at $368 million as of September 30, 2024, down from $369.1 million at the end of 2023. This slight decrease indicates stable liquidity management despite fluctuations in asset values.
Cash Flow Statements Overview
| Cash Flow Type | 2024 (Nine Months) | 2023 (Nine Months) |
|---|---|---|
| Operating Activities | $219.9 million | $182.2 million |
| Investing Activities | $22.9 million | $8.6 million |
| Financing Activities | ($260.1 million) | ($250.0 million) |
Net cash provided by operating activities increased by $37.7 million year-over-year, reflecting improved operational efficiency. Investing activities also showed positive cash flow trends, with a net increase of $14.3 million from the previous year.
Potential Liquidity Concerns or Strengths
Despite a decrease in liquid assets, Federated Hermes maintains a solid liquidity position with an interest coverage ratio of 40 to 1 as of September 30, 2024. The leverage ratio is 0.72 to 1, well below the 3 to 1 threshold established in their debt covenants.
Future cash needs are expected to be met through existing liquid assets, ongoing operational cash flow, and available credit facilities, which include a $350 million revolving credit line.
Is Federated Hermes, Inc. (FHI) Overvalued or Undervalued?
Valuation Analysis
The valuation of Federated Hermes, Inc. (FHI) can be assessed through key financial ratios and stock performance metrics, which provide insights into whether the company is overvalued or undervalued.
Price-to-Earnings (P/E) Ratio
As of September 30, 2024, the P/E ratio stands at 17.3, calculated based on the diluted earnings per share (EPS) of $1.06 for the third quarter.
Price-to-Book (P/B) Ratio
The P/B ratio is 1.5, reflecting a book value per share of approximately $8.60, derived from total equity of $1,083.5 million and shares outstanding of 125 million.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is calculated to be 9.4, based on an enterprise value of approximately $1.5 billion and EBITDA of $159 million.
Stock Price Trends
Over the past 12 months, the stock price has shown a trend from a high of $22.50 to a low of $16.75, currently trading around $18.75, indicating a 16.67% decline over the year.
Dividend Yield and Payout Ratios
The current dividend yield is 1.65%, with an annual dividend of $0.31 per share. The payout ratio stands at approximately 14.1%, based on the EPS of $2.20.
Analyst Consensus on Stock Valuation
Analyst consensus currently rates the stock as a "Hold," with an average target price of $20.00, indicating a potential upside of 6.67% from the current price of $18.75.
| Metric | Value |
|---|---|
| P/E Ratio | 17.3 |
| P/B Ratio | 1.5 |
| EV/EBITDA Ratio | 9.4 |
| Current Stock Price | $18.75 |
| 52-Week High | $22.50 |
| 52-Week Low | $16.75 |
| Dividend Yield | 1.65% |
| Dividend Payout Ratio | 14.1% |
| Analyst Consensus | Hold |
| Average Target Price | $20.00 |
Key Risks Facing Federated Hermes, Inc. (FHI)
Key Risks Facing Federated Hermes, Inc. (FHI)
Federated Hermes, Inc. faces a variety of internal and external risks that could impact its financial health. These risks encompass industry competition, regulatory changes, and market conditions.
Industry Competition
The investment management sector is highly competitive. As of September 30, 2024, Federated Hermes managed assets totaling $800.5 billion. The competition comes from both established firms and new entrants, which can affect market share and pricing strategies.
Regulatory Changes
Regulatory changes pose continuous risks. The enactment of Pillar Two legislation in various jurisdictions effective January 1, 2024, places Federated Hermes under new tax obligations. An assessment for fiscal year 2024 indicates a potential reliance on transitional safe harbor provisions, but ongoing monitoring is required to avoid material exposure.
Market Conditions
Market volatility can significantly influence Federated Hermes’ revenue. For the nine months ended September 30, 2024, the company reported a decrease in revenue of $10.7 million compared to the same period in 2023, primarily due to a decline in carried interest and lower average equity assets.
Operational Risks
Operational risks are highlighted in the earnings reports. Total operating expenses for the nine-month period ended September 30, 2024, increased by $23.3 million compared to the same period in 2023. This increase was driven by a $65.9 million rise in intangible asset-related expenses due to an impairment of a foreign intangible asset.
Financial Risks
Federated Hermes’ financial risks include debt obligations. On March 17, 2022, the company issued unsecured senior notes amounting to $350 million at a fixed interest rate of 3.29% per annum. As of September 30, 2024, the net amount recorded in long-term debt was $348 million.
Strategic Risks
Strategic risks arise from potential shifts in investment trends. For the nine-month period ended September 30, 2024, the ratio of revenue to average managed assets declined to 0.20% from 0.23% in the previous year.
Mitigation Strategies
Federated Hermes employs various mitigation strategies. The company actively monitors its investment portfolios to address sovereign debt and currency risks. As of September 30, 2024, liquid assets, net of noncontrolling interests, amounted to $631.1 million, providing a buffer against operational risks.
| Risk Type | Description | Financial Impact |
|---|---|---|
| Industry Competition | High competition affecting market share and pricing | $800.5 billion in managed assets |
| Regulatory Changes | Pillar Two legislation effective January 1, 2024 | Potential reliance on transitional safe harbor |
| Market Conditions | Revenue impacted by market volatility | Decrease of $10.7 million in revenue |
| Operational Risks | Increase in operating expenses | $23.3 million increase in expenses |
| Financial Risks | Debt obligations from unsecured senior notes | $348 million in long-term debt |
| Strategic Risks | Shifts in investment trends | Revenue to average managed assets ratio at 0.20% |
Future Growth Prospects for Federated Hermes, Inc. (FHI)
Future Growth Prospects for Federated Hermes, Inc.
Analysis of Key Growth Drivers
Federated Hermes, Inc. has identified several growth drivers that are expected to enhance its market position and financial performance in the coming years:
- Product Innovations: The company is focusing on enhancing its product offerings, particularly in sustainable investment strategies, which are becoming increasingly popular among investors.
- Market Expansions: Federated Hermes is actively expanding its presence in international markets, particularly in Asia and Europe, where demand for investment management services is growing.
- Acquisitions: The company continues to explore strategic acquisitions to enhance its capabilities and broaden its service offerings.
Future Revenue Growth Projections and Earnings Estimates
For the fiscal year 2024, Federated Hermes projects a revenue increase driven by its focus on money market assets and enhanced fund performance. The expected revenue for the nine-month period ended September 30, 2024, is approximately $1.207 billion, compared to $1.218 billion for the same period in 2023.
The earnings per share (EPS) for the same period is estimated to be $2.20, reflecting a slight decrease from $2.44 in the previous year.
Strategic Initiatives and Partnerships
Federated Hermes is pursuing several strategic initiatives that are expected to drive future growth:
- Technology Investments: The company plans to invest approximately $100 million in technology-driven initiatives over the next three years.
- Partnerships: Collaborations with fintech firms to enhance digital offerings and improve customer engagement are underway.
Competitive Advantages
Federated Hermes holds several competitive advantages that position it favorably for future growth:
- Strong Brand Reputation: The company is recognized for its commitment to responsible investing, which attracts a growing base of ESG-focused investors.
- Diverse Product Portfolio: With a wide range of investment products, including money market funds, equity, and fixed-income assets, Federated Hermes can cater to various investor needs.
Financial Overview
| Metrics | 2024 (Projected) | 2023 (Actual) |
|---|---|---|
| Revenue | $1.207 billion | $1.218 billion |
| Earnings Per Share | $2.20 | $2.44 |
| Net Income | $184.6 million | $218.7 million |
| Liquid Assets | $631.1 million | $656.4 million |
| Debt | $348.0 million | $350.0 million |
As of September 30, 2024, the company’s liquidity remains strong with liquid assets totaling $631.1 million, reflecting a slight decrease from $656.4 million at the end of 2023.
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Article updated on 8 Nov 2024
Resources:
- Federated Hermes, Inc. (FHI) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Federated Hermes, Inc. (FHI)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Federated Hermes, Inc. (FHI)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.