Federated Investors, Inc. Reports Fourth Quarter and Year-End 2008 Earnings; Total Managed Assets Increase to Record $407 Billion

  • Money market assets increase 50 percent to $355.7 billion during 2008
  • 2008 earnings increase 3 percent over 2007
  • 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 $0.54 for the quarter ended Dec. 31, 2008 compared to $0.52 for the same quarter last year. Net income was $54.3 million for Q4 2008 compared to $52.7 million for Q4 2007. Results for the fourth quarter of 2008 included a favorable impact of $2.6 million or $0.03 per share due to lower deferred tax expense.

For the year ended Dec. 31, 2008, Federated reported EPS from continuing operations of $2.20 compared to $2.12 for 2007, an increase of 4 percent. For the year ended Dec. 31, 2008, income from continuing operations was $221.5 million compared to $217.5 million for 2007, an increase of 2 percent.

Federated's total managed assets reached a record $407.3 billion at Dec. 31, 2008, up $105.7 billion or 35 percent from $301.6 billion at Dec. 31, 2007 and up $63.3 billion or 18 percent from $344.0 billion reported at Sept. 30, 2008.  Asset growth for 2008 was driven by a $119.1 billion increase in money market assets. Average managed assets for Q4 2008 were $369.8 billion, up $79.7 billion or 27 percent from $290.1 billion reported for Q4 2007 and up $34.7 billion or 10 percent from $335.1 billion reported for Q3 2008.

"As investors sought haven from unprecedented market conditions, demand for our money market funds and fixed-income investments during 2008 enabled Federated to reach record highs in managed assets," said J. Christopher Donahue, president and chief executive officer. "In addition, Federated completed two acquisitions expanding our investment expertise and product offerings with the addition of the Federated Prudent Bear and Federated Prudent Global Income funds for alternative asset management and Federated Clover Investment Advisors for value equity management."

Federated's board of directors declared a quarterly dividend of $0.24 per share. The dividend is payable on Feb. 13, 2009 to shareholders of record as of Feb. 6, 2009. During Q4 2008, Federated purchased 86,700 shares of Federated class B common stock for $1.3 million. For 2008, the company purchased 1,297,720 shares of Federated class B common stock for $42.1 million.

Money market assets in both funds and separate accounts were $355.7 billion at Dec. 31, 2008, up $119.1 billion or 50 percent from $236.6 billion at Dec. 31, 2007 and up $67.9 billion or 24 percent from $287.8 billion at Sept. 30, 2008. Money market mutual fund assets were $327.3 billion at year end, up $112.3 billion or 52 percent from $215.0 billion at Dec. 31, 2007 and up $68.1 billion or 26 percent from $259.2 billion at Sept. 30, 2008.

Federated's fixed-income assets were $25.0 billion at Dec. 31, 2008, up $2.2 billion or 10 percent from $22.8 billion at Dec. 31, 2007 and up $0.5 billion or 2 percent from $24.5 billion at Sept. 30, 2008. Federated had net inflows of $1.4 billion into its bond funds during 2008.

Federated's equity assets were $26.7 billion at Dec. 31, 2008, down $15.5 billion or 37 percent from $42.2 billion at Dec. 31, 2007 and down $5.0 billion or 16 percent from $31.7 billion at Sept. 30, 2008 primarily due to market conditions and to, a lesser extent, net outflows.

Financial Summary

Q4 2008 vs. Q4 2007

For Q4 2008, revenue increased to $301.8 million compared to $300.3 million for the same quarter last year. An increase in revenue of $60.5 million from higher average money market managed assets was partially offset by a $49.9 million decrease from lower average equity managed assets, a $3.1 million decrease due to a change in the mix of average fixed-income managed assets and a $5.6 million increase in voluntary fee waivers for competitive reasons, which included $3.4 million in fee waivers on certain money market funds in order to maintain zero to positive net yields. The increase in fee waivers was offset by a related reduction in marketing and distribution expenses of $1.9 million such that the net impact on operating income was a decrease of $1.5 million.

Fee waivers to produce positive or zero net yields are expected to increase and these increases could be significant. The specific level of these waivers will be determined by a variety of factors including market yield levels for money market investments, asset levels within money market funds, changes in the mix of money market assets by type of fund, changes in the expense levels of money market funds, and the willingness of the fund adviser to sustain these waivers.

For Q4 2008, Federated derived 69 percent of its revenue from money market assets, 21 percent from equity assets, 9 percent from fixed-income assets and 1 percent from other products and services.

Operating expenses for Q4 2008 increased $2.0 million or 1 percent to $216.0 million compared to $214.0 million for Q4 2007. The increase in operating expenses was attributable to higher marketing and distribution expenses of $19.4 million primarily from higher average money market managed assets. The increase was partially offset by a decrease of $15 million in compensation and related expenses since, in Q4 2007, Federated incurred a $15 million expense related to new employment agreements with certain Federated Kaufmann employees.

Nonoperating expenses for Q4 2008 increased $2.6 million to $3.2 million compared to $0.6 million for Q4 2007 primarily due to an increase in recourse debt expense and a decrease in investment income due to lower average investment balances and yields.

Q4 2008 vs. Q3 2008

Compared to the prior quarter, revenue decreased by $4.1 million or 1 percent. The revenue decrease was primarily due to a $28.4 million decrease from lower average equity managed assets and a $3.8 million increase in voluntary fee waivers for competitive reasons, which included $3.4 million in fee waivers on certain money market funds in order to maintain zero to positive net yields. The increase in fee waivers is offset by a related reduction in marketing and distribution expense of $2.0 million such that the net impact on operating income is a decrease of $1.4 million. The decreases in revenue were partially offset by a $29.2 million increase in revenue from higher average money market managed assets.

Compared to Q3 2008, operating expenses increased by $3.4 million or 2 percent. The increase in operating expenses was attributable to higher marketing and distribution expenses of $8.8 million primarily from higher average money market managed assets. The increase was partially offset by a $4.3 million decrease in compensation and related expenses from Q3 2008 primarily due to lower incentive pay.

Nonoperating expenses increased $1.9 million compared to the prior quarter due mainly to a decrease in investment income from lower average investment balances and an increase in recourse debt expense.

2008 vs. 2007

Revenue for 2008 increased $96.0 million or 9 percent to $1.2 billion compared to $1.1 billion for the same period last year. An increase in revenue of $198.3 million from higher average money market managed assets was partially offset by an $83.5 million decrease from lower average equity managed assets, a $4.6 million decrease due to a change in the mix of average fixed-income managed assets and an $11.0 million increase in voluntary fee waivers for competitive reasons, which included $3.6 million in fee waivers on certain money market funds in order to maintain zero to positive net yields. The increase in fee waivers was offset by a related reduction in marketing and distribution expenses of $1.9 million such that the net impact on operating income was a decrease of $1.7 million. For 2008, Federated derived 61 percent of its revenue from money market assets, 29 percent from equity assets, 9 percent from fixed-income assets and 1 percent from other products and services.

Operating expenses for 2008 increased $92.0 million or 12 percent to $862.5 million compared to $770.5 million for the same period last year. The increase in operating expenses was attributable to an $85.9 million increase in marketing and distribution expenses related primarily to increased average money market managed assets.

Nonoperating expenses for 2008 decreased slightly compared to 2007. Nonoperating expenses in 2008 were impacted by lower non-recourse debt expense offset by higher recourse debt expense.

The Q4 2008 results included a favorable impact of $2.6 million or $0.03 per share primarily due to adjustments to deferred tax liabilities following the full amortization of certain deferred sales commissions.

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 can impact Federated’s activity levels and financial results significantly including asset levels, product sales and redemptions, market appreciation or depreciation, revenues, fee waivers, expenses and earnings. 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.

Federated will host an earnings conference call at 9 a.m. Eastern on Jan. 23, 2009. 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 for the teleconference. The call may also be accessed in real time on the Internet via the About Us section of FederatedInvestors.com. A replay will be available after 12:30 p.m. and until Jan. 30, 2009 by calling 877-660-6853 (domestic) or 201-612-7415 (international) and entering codes 286 and 308797.

Federated Investors, Inc. is one of the largest investment managers in the United States, managing $407.3 billion in assets as of Dec. 31, 2008. With 158 mutual funds and a variety of separately managed account options, Federated provides comprehensive investment management to nearly 5,400 institutions and intermediaries including corporations, government entities, insurance companies, foundations and endowments, banks and broker/dealers. Federated ranks in the top 2 percent of money market fund managers in the industry, the top 8 percent of equity fund managers and the top 8 percent of fixed-income fund managers1. For more information, visit FederatedInvestors.com.

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The preceding paragraphs represent only a portion of the press release. To view the entire press release click on the full press release on the right.

1 Strategic Insight, Nov. 30, 2008. Based on assets under management in open-end funds.

Certain statements in this press release, such as those related to the level of fee waivers incurred by the Company, asset flows, and asset and revenue levels, 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 asset flows, and asset and revenue levels, 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.

Financial Statements

Full Press Release

Media Contacts

For information and interviews, please contact our media relations team:

Meghan McAndrew
412-288-8103

J.T. Tuskan
412-288-7895

Analyst Contacts

Ray Hanley
412-288-1920



 
 
 
 
 
 
 
 
 
 
 
Federated Securities Corp. is distributor of the Federated Funds.
Separately managed accounts are made available through Federated Investment Counseling and MDT Advisers, both registered investment advisors.
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