Federated Investors, Inc. Reports First Quarter 2013 Earnings

--Equity and bond assets increase $2.6 billion during Q1 2013 to a record $98 billion
--Board declares $0.24 per share quarterly dividend

PR Newswire

PITTSBURGH, April 25, 2013 /PRNewswire/ -- Federated Investors, Inc. (FII), one of the nation's largest investment managers, today reported earnings per diluted share (EPS) of $0.41 for the quarter ended March 31, 2013, which was unchanged from the same quarter last year.  Net income was $43.0 million for Q1 2013 compared to $42.3 million for Q1 2012.  

Federated's total managed assets were $377.3 billion at March 31, 2013, up $13.7 billion or 4 percent from $363.6 billion at March 31, 2012 and down $2.5 billion or 1 percent from $379.8 billion reported at Dec. 31, 2012.  Average managed assets for Q1 2013 were $381.2 billion, up $11.1 billion or 3 percent from $370.1 billion reported for Q1 2012 and up $12.5 billion or 3 percent from $368.7 billion reported for Q4 2012. 

"With more than 80 percent of Federated's rated equity-fund assets finishing in the top half of their respective categories for the one-year period, we saw strong demand for a range of strategies, including our Kaufmann large growth portfolio, international equity funds and balanced products," said J. Christopher Donahue, president and chief executive officer.  "At the same time, we continued to see significant sales in a variety of income-oriented strategies, both equity and fixed income."

Federated's board of directors declared a quarterly dividend of $0.24 per share.  The dividend is payable on May 15, 2013 to shareholders of record as of May 8, 2013.  During Q1 2013, Federated purchased 131,472 shares of Federated class B common stock for $2.7 million. 

Federated's equity assets were $37.9 billion at March 31, 2013, up $3.8 billion or 11 percent from $34.1 billion at March 31, 2012 and up $2.9 billion or 8 percent from $35.0 billion at Dec. 31, 2012.  Top-selling equity funds during Q1 2013 on a net basis were Federated Kaufmann Large Cap Fund, Federated International Strategic Value Dividend Fund, Federated Capital Income Fund, Federated International Leaders Fund and Federated Managed Volatility Fund II. 

Federated's fixed-income assets were a record $52.8 billion at March 31, 2013, up $6.6 billion or 14 percent from $46.2 billion at March 31, 2012 and up $0.1 billion from $52.7 billion at Dec. 31, 2012.  Bond assets in the liquidation portfolio were $7.0 billion at March 31, 2013.  Fixed-income sales during Q1 2013 were driven by net sales in Federated Institutional High Yield Bond Fund, Federated's short-duration products, Federated Floating Rate Strategic Income Fund and Federated Bond Fund.

Money market assets in both funds and separate accounts were $279.7 billion at March 31, 2013, up $5.0 billion or 2 percent from $274.7 billion at March 31, 2012 and down $5.0 billion or 2 percent from $284.7 billion at Dec. 31, 2012.  Money market mutual fund assets were $242.7 billion at March 31, 2013, down $2.5 billion or 1 percent from $245.2 billion at March 31, 2012 and down $13.0 billion or 5 percent from $255.7 billion at Dec. 31, 2012. 

Financial Summary

Q1 2013 vs. Q1 2012

Revenue decreased by $2.3 million or 1 percent due primarily to an increase in voluntary fee waivers related to certain money market funds in order for these funds to maintain positive or zero net yields.  The decrease was partially offset by an increase in revenue due to higher average fixed-income and equity assets. See additional information about voluntary fee waivers in the table at the end of this financial summary. 

During Q1 2013, Federated derived 56 percent of its revenue from equity and fixed-income assets (33 percent from equity assets and 23 percent from fixed-income assets), 43 percent from money market assets and 1 percent from other products and services.

Operating expenses were down slightly from the prior year. 

Q1 2013 vs. Q4 2012

Revenue decreased by $16.9 million or 7 percent primarily due to an increase in voluntary fee waivers and fewer days in the quarter, partially offset by an increase in average assets.

Operating expenses decreased by $1.9 million or 1 percent. The decrease primarily reflects lower distribution expense related to the aforementioned increase in fee waivers.  The decrease was partially offset by an increase in compensation and related expense and an increase in professional service fees, as Q4 2012 included the recognition of insurance proceeds.

Federated's level of business activity and financial results are dependent upon many factors including market conditions, investment performance and investor behavior.  These factors and others including asset levels, product sales and redemptions, market appreciation or depreciation, revenues, fee waivers and expenses can impact Federated's activity levels and financial results significantly.  Risk factors and uncertainties that can influence Federated's financial results are discussed in the company's annual and quarterly reports as filed with the Securities and Exchange Commission.

Fee waivers to maintain positive or zero net yields could vary significantly in the future as they are contingent on a number of variables including, but not limited to, changes in assets within the money market funds, available yields on instruments held by the money market funds, actions by the Federal Reserve, the U.S. Department of the Treasury, the Securities and Exchange Commission, the Financial Stability Oversight Council and other governmental entities, changes in expenses of the money market funds, changes in the mix of money market customer assets, Federated's willingness to continue the fee waivers and changes in the extent to which the impact of the waivers is shared by third parties.

 

Money Market Fund Yield Waiver Impact to Consolidated Statements of Income


(in millions)

















Quarter Ended


Change
Q1 2012 to Q1 2013


Quarter Ended


Change
Q4 2012 to Q1 2013


March 31, 2013


March 31, 2012



Dec. 31, 2012


Investment advisory fees

$

(54.9)



$

(52.9)



$

(2.0)



$

(40.0)



$

(14.9)


Other service fees

(32.4)



(27.5)



(4.9)



(30.7)



(1.7)


Total Revenue

$

(87.3)



$

(80.4)



$

(6.9)



$

(70.7)



$

(16.6)


Less: Reduction in distribution expense

64.8



57.5



7.3



54.9



9.9


Operating income

$

(22.5)



$

(22.9)



$

0.4



$

(15.8)



$

(6.7)


Less: Reduction in noncontrolling interest

0.8



0.6



0.2



0.3



0.5


Pre-tax impact

$

(21.7)



$

(22.3)



$

0.6



$

(15.5)



$

(6.2)






















 

Federated will host an earnings conference call at 9 a.m. Eastern on April 26, 2013.  Investors are invited to listen to Federated's earnings teleconference by calling 877-407-0782 (domestic) or 201-689-8567 (international) prior to the 9 a.m. start time.  The call may also be accessed in real time on the Internet via the About Federated section of FederatedInvestors.com.  A replay will be available after 12:30 p.m. and through May 3, 2013 by calling 877-660-6853 (domestic) or 201-612-7415 (international) and entering access code 411857.

Federated Investors, Inc. is one of the largest investment managers in the United States, managing $377.3 billion in assets as of March 31, 2013.  With 137 funds and a variety of separately managed account options, Federated provides comprehensive investment management to approximately 5,500 institutions and intermediaries including corporations, government entities, insurance companies, foundations and endowments, banks and broker/dealers.  Federated ranks in the top 3 percent of money market fund managers in the industry, the top 7 percent of equity fund managers and the top 8 percent of fixed-income fund managers1.  For more information, visit FederatedInvestors.com.

1 Strategic Insight, Feb. 28, 2013.  Based on assets under management in open-end funds.

Federated Securities Corp. is distributor of the Federated funds. 

Separately managed accounts are made available through Federated Global Investment Management Corp., Federated Investment Counseling and Federated MDTA LLC, each a registered investment adviser.

Certain statements in this press release, such as those related to the level of fee waivers incurred by the company, product demand and asset flows constitute or may constitute forward-looking statements, which involve known and unknown risks, uncertainties and other factors that may cause the actual results, levels of activity, performance or achievements of the company, or industry results, to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements.  Other risks and uncertainties include the ability of the company to predict the level of fee waivers in future quarters, which could vary significantly depending on a variety of factors identified above, and include the ability of the company to sustain product demand and asset flows, which could vary significantly depending on market conditions, investment performance and investor behavior.  Other risks and uncertainties also include the risk factors discussed in the company's annual and quarterly reports as filed with the Securities and Exchange Commission.  As a result, no assurance can be given as to future results, levels of activity, performance or achievements, and neither the company nor any other person assumes responsibility for the accuracy and completeness of such statements in the future.

 

 

Unaudited Condensed Consolidated Statements of Income


(in thousands, except per share data)







Quarter Ended

% Change Q1 2012 to Q1 2013

Quarter Ended

% Change
Q4 2012 to
Q1 2013


March 31, 2013

March 31, 2012

Dec. 31, 2012

Revenue






Investment advisory fees, net

$

150,763


$

149,348


1

%

$

166,813


(10)%


Administrative service fees, net

56,828


57,292


(1)


57,372


(1)


Other service fees, net

19,332


22,655


(15)


19,818


(2)


Other, net

1,049


986


6


821


28


Total Revenue

227,972


230,281


(1)


244,824


(7)








Operating Expenses






Compensation and related

66,937


64,065


4


63,211


6


Distribution

58,240


61,693


(6)


65,278


(11)


Professional service fees

8,844


10,308


(14)


6,549


35


Systems and communications

6,623


6,310


5


6,100


9


Office and occupancy

6,432


6,253


3


6,349


1


Advertising and promotional

3,422


2,928


17


3,611


(5)


Travel and related

2,686


2,751


(2)


3,837


(30)


Intangible asset related

763


21


3,533


951


(20)


Other

5,826


5,605


4


5,746


1


Total Operating Expenses

159,773


159,934


0


161,632


(1)


Operating Income

68,199


70,347


(3)


83,192


(18)








Nonoperating Income (Expenses)






Investment income, net

4,428


3,346


32


4,343


2


Debt expense

(3,253)


(3,711)


(12)


(3,506)


(7)


Other, net

(40)


(37)


8


(3,112)


(99)


Total Nonoperating Income (Expenses), net

1,135


(402)


382


(2,275)


150


Income before income taxes

69,334


69,945


(1)


80,917


(14)


Income tax provision

24,646


25,538


(3)


28,961


(15)


Net income including noncontrolling interest in subsidiaries

44,688


44,407


1


51,956


(14)


Less: Net income attributable to the noncontrolling interest in 
       subsidiaries

1,694


2,082


(19)


2,375


(29)


Net Income

$

42,994


$

42,325


2

%

$

49,581


(13)%








Amounts Attributable to Federated






Earnings Per Share1






Basic and diluted

$

0.41


$

0.41


0

%

$

0.44


(7)%


Weighted-average shares outstanding






Basic and diluted

100,518


100,112



100,374



Dividends declared per share

$

0.24


$

0.24



$

1.75



1) Unvested share-based payment awards that receive non-forfeitable dividends are deemed participating securities and are required to be considered in the computation of earnings per share under the "two-class method." As such, total net income of $1.7 million, $1.5 million and $5.7 million available to unvested restricted shares for the quarterly periods ended March 31, 2013, March 31, 2012 and Dec. 31, 2012, respectively, was excluded from the computation of earnings per share.

 

 

Unaudited Condensed Consolidated Balance Sheets



(in thousands)

March 31, 2013

Dec. 31, 2012

Assets



Cash and other investments

$

306,857


$

258,628


Other current assets

39,390


41,434


Intangible assets, net and goodwill

727,163


727,857


Other long-term assets

63,858


62,142


Total Assets

$

1,137,268


$

1,090,061





Liabilities and Equity



Current liabilities

$

137,541


$

181,134


Long-term debt

265,625


276,250


Other long-term liabilities

135,119


128,733


Equity excluding treasury stock

1,350,401


1,263,966


Treasury stock

(751,418)


(760,022)


Total Liabilities and Equity

$

1,137,268


$

1,090,061


 

 

Changes in Equity and Fixed-Income Fund and Separate Account Assets

(in millions)


Quarter Ended


March 31, 2013

Dec. 31, 2012

March 31, 2012

Equity Funds




Beginning assets

$

23,152


$

23,658


$

21,930


Sales

1,752


1,415


1,823


Redemptions

(2,388)


(1,866)


(2,187)


Net redemptions

(636)


(451)


(364)


Net exchanges

47


(47)


(12)


Market gains and losses/reinvestments1

1,928


(8)


2,058


Ending assets

$

24,491


$

23,152


$

23,612






Equity Separate Accounts2




Beginning assets

$

11,858


$

11,697


$

8,957


Sales3

1,106


893


1,461


Redemptions3

(568)


(605)


(486)


Net sales3

538


288


975


Net exchanges

0


1


0


Market gains and losses/reinvestments1

965


(128)


573


Ending assets

$

13,361


$

11,858


$

10,505






Total Equity2




Beginning assets

$

35,010


$

35,355


$

30,887


Sales3

2,858


2,308


3,284


Redemptions3

(2,956)


(2,471)


(2,673)


Net (redemptions) sales3

(98)


(163)


611


Net exchanges

47


(46)


(12)


Market gains and losses/reinvestments1

2,893


(136)


2,631


Ending assets

$

37,852


$

35,010


$

34,117






Fixed-Income Funds




Beginning assets

$

42,478


$

41,547


$

37,241


Sales

5,148


4,848


4,822


Redemptions

(5,009)


(4,268)


(3,987)


Net sales

139


580


835


Net exchanges

(42)


141


(59)


Market gains and losses/reinvestments1

37


210


509


Ending assets

$

42,612


$

42,478


$

38,526






Fixed-Income Separate Accounts2




Beginning assets

$

10,233


$

9,842


$

7,573


Sales3

531


393


220


Redemptions3

(645)


(125)


(280)


Net (redemptions) sales3

(114)


268


(60)


Market gains and losses/reinvestments1

39


123


182


Ending assets

$

10,158


$

10,233


$

7,695






Total Fixed Income2




Beginning assets

$

52,711


$

51,389


$

44,814


Sales3

5,679


5,241


5,042


Redemptions3

(5,654)


(4,393)


(4,267)


Net sales3

25


848


775


Net exchanges

(42)


141


(59)


Market gains and losses/reinvestments1

76


333


691


Ending assets

$

52,770


$

52,711


$

46,221


1) Reflects the approximate changes in the fair value of the securities held by the portfolios and, to a lesser extent, reinvested dividends, distributions, net investment income and the impact of changes in foreign exchange rates.

2) Includes separately managed accounts, institutional accounts and sub-advised funds and other managed products.

3) For certain accounts, Sales and Redemptions are calculated as the remaining difference between beginning and ending assets after the calculation of Market gains and losses/reinvestments.

 

 

Changes in Liquidation Portfolio

(in millions)



Quarter Ended


March 31, 2013

Dec. 31, 2012

March 31, 2012

Liquidation Portfolio1




Beginning assets

$

7,346


$

7,718


$

8,856


Net redemptions

(327)


(372)


(273)


Ending Assets

$

7,019


$

7,346


$

8,583


1) Liquidation portfolio represents a portfolio of distressed bonds. Federated has been retained by a third party to manage these assets through an orderly liquidation process that will generally occur over a multi-year period.  Management-fee rates earned from these portfolios are lower than those of traditional separate account mandates.

 

 







MANAGED ASSETS

(in millions)

March 31, 2013

Dec. 31, 2012

Sept. 30, 2012

June 30, 2012

March 31, 2012

By Asset Class






Equity

$

37,852


$

35,010


$

35,355


$

33,221


$

34,117


Fixed-income

52,770


52,711


51,389


48,968


46,221


Money market

279,668


284,704


269,622


265,548


274,704


Liquidation portfolio1

7,019


7,346


7,718


8,124


8,583


Total Managed Assets

$

377,309


$

379,771


$

364,084


$

355,861


$

363,625


By Product Type






Funds:






Equity

$

24,491


$

23,152


$

23,658


$

22,671


$

23,612


Fixed-income

42,612


42,478


41,547


39,494


38,526


Money market

242,734


255,689


244,826


238,610


245,232


Total Fund Assets

$

309,837


$

321,319


$

310,031


$

300,775


$

307,370


Separate Accounts:






Equity

$

13,361


$

11,858


$

11,697


$

10,550


$

10,505


Fixed-income

10,158


10,233


9,842


9,474


7,695


Money market

36,934


29,015


24,796


26,938


29,472


Total Separate Accounts

$

60,453


$

51,106


$

46,335


$

46,962


$

47,672


Total Liquidation Portfolio1

$

7,019


$

7,346


$

7,718


$

8,124


$

8,583


Total Managed Assets

$

377,309


$

379,771


$

364,084


$

355,861


$

363,625



AVERAGE MANAGED ASSETS

Quarter Ended

(in millions)

March 31, 2013

Dec. 31, 2012

Sept. 30, 2012

June 30, 2012

March 31, 2012

By Asset Class






Equity

$

36,685


$

35,016


$

34,429


$

32,993


$

32,827


Fixed-income

52,732


52,211


50,195


47,747


45,792


Money market

284,588


273,943


268,573


271,507


282,801


Liquidation portfolio1

7,215


7,559


7,948


8,353


8,703


Total Avg. Assets

$

381,220


$

368,729


$

361,145


$

360,600


$

370,123


By Product Type






Funds:






Equity

$

24,037


$

23,209


$

23,133


$

22,642


$

23,075


Fixed-income

42,581


42,156


40,579


38,901


38,128


Money market

250,652


248,534


243,111


243,454


251,825


Total Avg. Fund Assets

$

317,270


$

313,899


$

306,823


$

304,997


$

313,028


Separate Accounts:






Equity

$

12,648


$

11,807


$

11,296


$

10,351


$

9,752


Fixed-income

10,151


10,055


9,616


8,846


7,664


Money market

33,936


25,409


25,462


28,053


30,976


Total Avg. Separate Accounts

$

56,735


$

47,271


$

46,374


$

47,250


$

48,392


Total Avg. Liquidation Portfolio1

$

7,215


$

7,559


$

7,948


$

8,353


$

8,703


Total Avg. Managed Assets

$

381,220


$

368,729


$

361,145


$

360,600


$

370,123


1) Liquidation portfolio represents a portfolio of distressed bonds. Federated has been retained by a third party to manage these assets through an orderly liquidation process that will generally occur over a multi-year period. Management-fee rates earned from these portfolios are lower than those of traditional separate account mandates.

 

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