Federated Investors, Inc. Reports Third Quarter 2004 Earnings
- Board increases quarterly dividend to $0.125 per share or 23 percent
- Board authorizes additional 5 million shares for repurchase program
(PITTSBURGH, Pa., ) — Federated Investors, Inc. (NYSE: FII), one of the nation's largest investment managers, today reported earnings per diluted share (EPS) from continuing operations1 of $0.43 for the quarter ended September 30, 2004, a four percent decrease from Q3 2003's EPS from continuing operations of $0.45 per share. Income from continuing operations for Q3 2004 was $47.2 million compared to income from continuing operations of $49.9 million for Q3 2003. Federated reported YTD 2004 EPS from continuing operations of $1.33, a two percent increase compared to EPS from continuing operations of $1.30 for the same period in 2003. For YTD 2004, income from continuing operations was $147.0 million compared to $146.1 million for the same period in 2003.
Federated's assets under management were $177.6 billion at September 30, 2004, down eight percent from $194.1 billion at September 30, 2003. Consistent with industry trends during a period of higher short-term interest rates, Federated's asset decline was due largely to lower money market and fixed income assets. Federated's equity assets increased 17 percent from Q3 2003. Total average managed assets for the quarter were $181.8 billion, $16.9 billion lower than the $198.7 billion reported for Q3 2003.
"In a challenging interest-rate environment, we continue to grow our customer base for cash management and to work with our clients to implement effective equity and fixed-income strategies," said J. Christopher Donahue, president and CEO. "In addition, we are pursuing growth initiatives in a number of other areas. These include acquisitions, such as the addition of $265.5 million in assets from the Banknorth mutual funds in August, the accelerated growth of equity assets in our managed account business and the continued investment in equity management talent."
The company also announced today that its board of directors voted to increase the quarterly dividend to $0.125 per share, up 23 percent from the prior quarter and up 47 percent from the dividend declared a year ago. The board declared a quarterly dividend payable on November 15, 2004, to shareholders of record as of November 8, 2004. Federated continued its share buyback program in the third quarter by purchasing 1,718,400 shares of Federated Investors, Inc. class B common stock for $48.8 million in the open market. Federated's board of directors also authorized a new share repurchase program whereby the company can repurchase an additional five million shares through its share repurchase program, which will expire on December 31, 2006. With the additional shares, the company is authorized to repurchase up to 6.4 million shares.
Through its mutual funds and separate accounts, Federated managed $52.1 billion in equity and fixedincome assets as of September 30, 2004. Equity assets ended the quarter at $26.2 billion, up $3.9 billion from Q3 2003 and down $0.4 billion from Q2 2004. Federated’s net equity mutual fund sales continued to be positive for the quarter and YTD. Net equity sales were $20 million for Q3 2004 and were $473 million for YTD 2004. The company continued to derive strong sales from the Federated Kaufmann Fund, Federated Kaufmann Small Cap Fund, Federated Market Opportunity Fund, Federated Capital Appreciation Fund and Federated Muni and Stock Advantage Fund during the quarter.
Fixed-income assets ended the quarter at $25.9 billion, down $3.5 billion or 12 percent from Q3 2003 and up slightly from the end of Q2 2004. Federated's fixed-income mutual funds had net redemptions of $823 million for Q3 2004 and $3.1 billion for YTD 2004.
Federated's money market assets declined during the third quarter. Money market assets in both funds and separate accounts totaled $125.5 billion at September 30, 2004, down $16.8 billion or 12 percent from Q3 2003. Average money market assets in both funds and separate accounts totaled $129.9 billion for Q3 2004, down $17.7 billion or 12 percent from Q3 2003.
For Q3 2004, Federated derived 39 percent of its revenue from money market assets, 37 percent from equity assets, 19 percent from fixed-income assets and five percent from other products and services. For the quarter ended September 30, 2004, total revenue increased slightly to $205.2 million from $203.1 million for the same quarter in 2003. Total revenue for the first nine months of 2004 increased nine percent to $639.0 million from $586.2 million for the first nine months of 2003. Operating expenses increased two percent for Q3 2004 to $123.8 million from $121.5 million for Q3 2003. For the nine months ended September 30, 2004, operating expenses increased 11 percent to $386.1 million compared to $348.1 million for the same period in 2003.
Increases in other service fees, net; amortization of deferred sales commissions; and debt expense—nonrecourse include the result of applying financing treatment in 2004 to account for all B-share distribution-related funding arrangements. The impact of financing treatment in Q3 2004 was approximately $11.9 million of additional revenue, $8.9 million of additional operating expense and $4.2 million of additional debt expense—nonrecourse. For YTD 2004, the impact of financing treatment was approximately $36.9 million of additional revenue, $27.6 million of additional operating expense and $12.9 million of additional debt expense—nonrecourse.
As a result of certain contractual changes in 2004, the increases in Federated's revenue and operating income were partially offset by the elimination of portfolio accounting revenue and expenses related to Federated-sponsored funds. Q3 2003 and YTD 2003 included $4.2 million and $12.4 million, respectively, of revenue and $3.5 million and $10.3 million, respectively, of operating expenses that, due to the portfolio accounting contract changes, are no longer recorded effective January 1, 2004.
Federated will host an earnings conference call at 9 a.m. Eastern on Friday, October 29, 2004. Investors are invited to listen to Federated's Q3 earnings teleconference by calling 888-412-9259 (domestic) or 706-679-0848 (international) prior to the 9 a.m. Eastern start time. The call may also be accessed in real time on the Internet via the About Us section of www.federatedinvestors.com. A replay will be available after 1 p.m. Eastern and until November 5, 2004, by calling 800-642-1687 (domestic) or 706-645-9291 (international) and entering code 1295556.
Federated Investors, Inc. is one of the largest investment managers in the United States, managing approximately $178 billion in assets as of September 30, 2004. With more than 135 mutual funds, various separately managed accounts and closed-end funds, Federated provides comprehensive investment management to 5,800 institutions and intermediaries including corporations, government entities, insurance companies, foundations and endowments, banks and broker/dealers. Federated ranks in the top two percent of money market fund managers in the industry, the top five percent of fixed-income fund managers and the top six percent of equity fund managers2.
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1Continuing operations exclude the sale of the firm's mutual fund transfer agency business to Boston Financial Data Services on June 30, 2004. Financial results have been reclassified to reflect this activity as discontinued operations. For more information, see Federated’s related filing on form 8-K dated July 6, 2004 and Federated’s form 10-Q dated August 6, 2004.
2Strategic Insight, August 31, 2004. Based on assets under management in open-end funds.
Certain statements in this press release, such as those related to the execution of the company's growth strategy 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. Such factors include the ability to grow our customer base and successfully implement growth initiatives, as well as those factors discussed in the company's annual and quarterly reports as filed with the Securities and Exchange Commission. Many of these factors may be more likely to occur as a result of the ongoing threat of terrorism. 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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