Federated Investors, Inc. Reports Second Quarter 2014 Earnings; Equity Managed Assets Reach a Record $50 Billion

PITTSBURGH, July 24, 2014 /PRNewswire/ -- Federated Investors, Inc. (NYSE: FII), one of the nation's largest investment managers, today reported earnings per diluted share (EPS) of $0.35 for Q2 2014 compared to $0.39 for the same quarter last year on net income of $36.9 million for Q2 2014 compared to $40.4 million for Q2 2013.  Federated reported YTD 2014 EPS of $0.69 compared to $0.80 for the same period in 2013 and YTD 2014 net income of $72.1 million compared to $83.4 million for the same period last year.

Federated's total managed assets were $351.6 billion at June 30, 2014.  Total assets were down $12.2 billion or 3 percent from $363.8 billion at June 30, 2013 and down $14.6 billion or 4 percent from $366.2 billion reported at March 31, 2014.  Federated's stock and bond assets were up $11.1 billion to $106.4 billion or 12 percent from $95.3 billion at June 30, 2013 and up $3.8 billion or 4 percent from $102.6 billion at March 31, 2014.  Average managed assets for Q2 2014 were $358.4 billion, down $14.5 billion or 4 percent from $372.9 billion reported for Q2 2013 and down $16.0 billion or 4 percent from $374.4 billion reported for Q1 2014.  

"Federated's increase in gross and net equity sales during the quarter strongly correlated with performance, with 96 percent  of Federated's equity-fund assets outperforming the majority of their peers over the last year and nearly 70 percent outperforming over the last three years," said J. Christopher Donahue, president and chief executive officer.  "Overall, the company's continued success cut across a variety of investment strategies including balanced, dividend income, large growth and international core on the equity side and, on the bond side, our high-yield offerings."

Federated's board of directors declared a quarterly dividend of $0.25 per share.  The dividend is payable on Aug. 15, 2014 to shareholders of record as of Aug. 8, 2014.  During Q2 2014, Federated purchased 213,767 shares of Federated class B common stock for $5.9 million.  

Federated's equity assets were a record $49.9 billion at June 30, 2014, up $11.2 billion or 29 percent from $38.7 billion at June 30, 2013 and up $4.0 billion or 9 percent from $45.9 billion at March 31, 2014.  Top-selling equity funds during Q2 2014 on a net basis were Federated Capital Income Fund, Federated Strategic Value Dividend Fund, Federated International Leaders Fund,  Federated MDT Stock Trust and Federated Muni and Stock Advantage Fund.

Federated's fixed-income assets were $51.1 billion at June 30, 2014, up $1.1 billion or 2 percent from $50.0 billion at June 30, 2013 and up $0.1 billion from $51.0 billion at March 31, 2014.  Bond assets in the liquidation portfolio were $5.4 billion at June 30, 2014.  Top-selling fixed-income funds during Q2 2014 on a net basis were Federated Sterling Cash-Plus Fund, Federated Institutional High Yield Bond Fund, Federated Floating Rate Strategic Income Fund, Federated High Yield Trust, Federated Ultrashort Bond Fund and Federated Intermediate Corporate Bond Fund.

Money-market assets were $245.2 billion at June 30, 2014, down $23.3 billion or 9 percent from $268.5 billion at June 30, 2013 and down $18.4 billion or 7 percent from $263.6 billion at March 31, 2014.  Money-market mutual fund assets were$212.4 billion at June 30, 2014, down $20.5 billion or 9 percent from $232.9 billion at June 30, 2013 and down $15.1 billion or 7 percent from $227.5 billion at March 31, 2014.

Financial Summary

Q2 2014 vs. Q2 2013

Revenue decreased by $10.8 million or 5 percent primarily due to an increase in voluntary fee waivers related to certain money- market funds in order for those funds to maintain positive or zero net yields and a decrease in revenue due to lower average money-market and fixed-income assets.  The decrease was partially offset by an increase in revenue from higher average equity assets. See additional information about voluntary fee waivers in the table at the end of this financial summary. 

During Q2 2014, Federated derived 67 percent of its revenue from equity and fixed-income assets (44 percent from equity assets and 23 percent from fixed-income assets), 32 percent from money-market assets and 1 percent from other products and services.

Operating expenses decreased $3.6 million or 2 percent primarily due to a decrease in distribution expenses associated with  lower average money-market assets and increased fee waivers related to the low-yield environment for money-market funds, offset by an increase in distribution expenses associated with higher average equity assets and an increase in compensation and related expense.  

Q2 2014 vs. Q1 2014

Revenue increased by $1.5 million or 1 percent primarily due to lower voluntary fee waivers, an additional day in Q2 2014 and an increase in revenue from higher average equity assets.  This increase was partially offset by a decrease in revenue from lower average money-market assets.

Operating expenses were flat.

YTD 2014 vs. YTD 2013

Revenue decreased by $27.3 million or 6 percent primarily due to an increase in voluntary fee waivers and a decrease in revenue resulting from lower average money-market and fixed-income assets.  The decrease was partially offset by higher average equity assets.

For the first half of 2014, Federated derived 66 percent of its revenue from equity and fixed-income assets (43 percent from equity assets and 23 percent from fixed-income assets), 33 percent from money-market assets and 1 percent from other products and services.

Operating expenses decreased $8.6 million or 3 percent primarily due to a decrease in distribution expense related to increased fee waivers, which was partially offset by an increase in compensation and related expenses.

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, expenses and regulatory changes, can significantly impact Federated's activity levels and financial results.  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 on money-market funds and the resulting negative impact of these waivers 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, changes in the distribution fee arrangements with third parties, 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.

Federated will host an earnings conference call at 9 a.m. Eastern on July 25, 2014.  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 Aug. 1, 2014 by calling 877-660-6853 (domestic) or 201-612-7415 (international) and entering access code 13586188.

Federated Investors, Inc. is one of the largest investment managers in the United States, managing $351.6 billion in assets as of June 30, 2014.  With 133 funds and a variety of separately managed account options, Federated provides comprehensive investment management to nearly 6,100 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 6 percent of equity fund managers and the top 10 percent of fixed-income fund managers¹.  For more information, visit FederatedInvestors.com.

1) Strategic Insight, May 31, 2014.  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 and expenses incurred by the company, product demand and performance, investor interest and preferences, asset flows and mix, fee arrangements with customers, distribution expense, regulatory changes and market conditions 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 and expenses 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 and mix, 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.

1) Unvested share-based payment awards that receive non-forfeitable dividend rights 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 $1.5 million, $1.5 million and $1.4 million available to unvested restricted shareholders for the quarterly periods ended June 30, 2014, June 30, 2013 and March 31, 2014, respectively, was excluded from the computation of earnings per share.

1) Unvested share-based payment awards that receive non-forfeitable dividend rights 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 $2.9 million and $3.2 million available to unvested restricted shareholders for the six months ended June 30, 2014 and June 30, 2013, respectively, was excluded from the computation of earnings per share.

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.
4)  Reflects the approximate changes in the fair value of the securities held by the portfolios.

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.
4)  Reflects the approximate changes in the fair value of the securities held by the portfolios.