Federated Investors, Inc. Announces Second Quarter 2008 Earnings
- Bond funds net more than $1 billion in sales during first half of 2008
- Board declares quarterly dividend of $0.24 per share
(PITTSBURGH, Pa., ) — Federated Investors, Inc. (NYSE: FII), one of the nation's largest investment managers, today reported earnings per diluted share (EPS) of $0.58 for the quarter ended June 30, 2008. These results include net earnings of $2.8 million or $0.03 per diluted share classified as income from discontinued operations, net of tax, related to the sale of the company's trade-clearing operation in 2006. Federated's EPS from continuing operations was $0.55 for the quarter ended June 30, 2008 compared to $0.54 for the same quarter last year. Income from continuing operations was $55.2 million for Q2 2008 compared to $55.3 million for Q2 2007. The Q2 2008 results include pre-tax expenses of $2.2 million, or $0.01 per diluted share after tax and $1.8 million, or $0.01 per diluted share after tax related to estimated additional costs for the distribution of Federated's 2005 regulatory settlement and for modification of certain mutual fund prospectuses, respectively.
Federated reported YTD 2008 EPS from continuing operations of $1.10 compared to $1.04 for the same period in 2007, an increase of 6 percent. For the six months ended June 30, 2008, income from continuing operations was $111.0 million compared to $107.0 million for the same period in 2007.
Federated's total managed assets were $333.5 billion at June 30, 2008, up $73.8 billion or 28 percent from $259.7 billion at June 30, 2007 and down $5.0 billion or 1 percent from the $338.5 billion reported at March 31, 2008. Money market assets decreased from the end of last quarter due mainly to seasonal outflows among separate accounts, while overall, average money market assets in Q2 2008 were higher than in Q1 2008. Total average managed assets for Q2 2008 were $343.3 billion, up $87.2 billion or 34 percent from $256.1 billion reported for Q2 2007 and up $21.3 billion or 7 percent from $322.0 billion reported for Q1 2008.
"Federated's broad product line, designed to help our clients across a range of market conditions, benefited the firm this quarter," said J. Christopher Donahue, president and chief executive officer. "Federated saw strong flows into its bond funds, where year-to-date net flows topped $1 billion." Federated's board of directors declared a quarterly dividend of $0.24 per share. The dividend is payable on Aug. 15, 2008 to shareholders of record as of Aug. 8, 2008. During Q2 2008, Federated purchased 1,068,440 shares of class B common stock for $37.2 million.
Money market assets in both funds and separate accounts were $271.1 billion at June 30, 2008, up $77.7 billion or 40 percent from $193.4 billion at June 30, 2007 and down $6.4 billion or 2 percent from $277.5 billion at March 31, 2008. Money market mutual fund assets were $240.6 billion at the end of Q2 2008, up $68.2 billion or 40 percent from $172.4 billion at June 30, 2007 and down $1.7 billion or 1 percent from $242.3 billion at March 31, 2008.
Federated's equity assets were $37.3 billion at June 30, 2008, down $6.0 billion or 14 percent from $43.3 billion at June 30, 2007 and down slightly from $37.5 billion at March 31, 2008. While net equity redemptions improved over previous quarters, difficult market conditions caused asset depreciation in equity products. Federated's top-selling equity mutual funds on a net basis were: Federated InterContinental Fund, Federated Kaufmann Large Cap Fund, Federated Kaufmann Small Cap Fund, Federated Strategic Value Fund and Federated MDT Small Cap Growth Fund. Federated saw continued growth in its equity separate accounts, which had $209 million in net positive flows during Q2 2008.
Federated's fixed-income assets were $25.1 billion at June 30, 2008, up $2.1 billion or 9 percent from $23.0 billion at June 30, 2007 and up $1.7 billion or 7 percent from $23.4 billion at March 31, 2008. Federated's top-selling fixed-income mutual funds on a net basis were: Federated Total Return Bond Fund; Federated Municipal Ultrashort Fund; Federated Government Ultrashort Duration Fund; Federated Ultrashort Bond Fund; and Federated U.S. Government Securities Fund: 1-3 Years.
Q2 2008 vs. Q2 2007
For Q2 2008, revenue increased $33.8 million or 12 percent to $310.3 million compared to $276.5 million for the same quarter last year. The increase in revenue is primarily due to an increase in revenue from average money market managed assets ($48.3 million). The increase was partially offset by a decrease in revenue from average equity managed assets ($9.9 million) and a change in the mix of average fixed-income managed assets ($0.8 million). For Q2 2008, Federated derived 58 percent of its revenue from money market assets, 32 percent from equity assets, 9 percent from fixed-income assets and 1 percent from other products and services.
Operating expenses for Q2 2008 increased $31.5 million or 17 percent to $219.1 million compared to $187.6 million for Q2 2007. The increase in operating expenses was primarily attributable to higher marketing and distribution expenses of $23.1 million primarily from higher average money market managed assets. In addition, compensation expenses increased by $7.4 million primarily due to higher incentive compensation. The increase in operating expenses for Q2 2008 compared to Q2 2007 included two notable items. The first item was $2.0 million in additional expense related to Federated's estimated costs for the distribution of the firm's 2005 regulatory settlement. The second item was a $1.8 million expense related to the cost of modifying certain money market fund prospectuses in order to broaden the scope of allowable investments.
Q2 2008 vs. Q1 2008
Compared to the prior quarter, revenue increased by $4.6 million or 2 percent. The increase was primarily due to an increase in revenue from average money market managed assets ($8.6 million). The revenue increase was partially offset by a decrease resulting from a change in the mix of average equity managed assets ($1.5 million) and Federated voluntarily waiving an additional $1.2 million in fund revenue for competitive reasons.
Compared to Q1 2008, operating expenses increased by $4.3 million or 2 percent. Professional service fees increased $2.9 million primarily due to a $1.4 million increase in estimated costs related to the distribution of Federated's 2005 regulatory settlement and $0.9 million related to the aforementioned prospectus modification. Marketing and distribution expenses increased by $2.7 million over Q1 2008 primarily due to higher average money market managed assets.
YTD 2008 vs. YTD 2007
Revenue for the first half of the year increased $75.1 million or 14 percent to $616.0 million compared to $540.9 million for the same time period last year. The increase in revenue is primarily due to an increase in revenue from average money market managed assets ($95.8 million). The increase was partially offset by a decrease in revenue from average equity managed assets ($13.5 million), a change in the mix of average fixed-income managed assets ($1.9 million) and Federated voluntarily waiving an additional $4.7 million in fund revenue for competitive reasons.
Operating expenses for the year-to-date period ended June 30, 2008 increased $65.6 million or 18 percent to $433.8 million compared to $368.2 million for the same period of last year. The increase in operating expenses was primarily attributable to an increase in marketing and distribution expenses of $50.6 million, primarily related to increased average money market managed assets. In addition, compensation and related expenses increased by $14.8 million primarily due to higher incentive compensation.
Federated will host an earnings conference call at 9 a.m. Eastern on July 25, 2008. Investors are invited to listen to Federated's Q2 earnings teleconference by calling 877-407-0782 (domestic) or 201-689-8567 (international) prior to the 9 a.m. start time for the teleconference. 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 until Aug. 1, 2008 by calling 877-660-6853 (domestic) or 201-612-7415 (international) and entering codes 286 and 289708.
Federated Investors, Inc. is one of the largest investment managers in the United States, managing $333.5 billion in assets as of June 30, 2008. With 147 mutual funds and a variety of separately managed account options, Federated provides comprehensive investment management to more than 5,400 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 8 percent of equity fund managers and the top 10 percent of fixed-income fund managers1. For more information, visit FederatedInvestors.com.
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1 Strategic Insight, May 31, 2008. Based on assets under management in open-end funds.
Certain statements in this press release, such as those related to asset flows and sales, 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. Among other risks and uncertainties is the ability of the company to sustain asset flows and sales and 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.
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